What the Accountant Saw Chapter 11 - Property Myths - The Developer

WHAT THE ACCOUNTANT SAW

Chapter 11 – Property Myth – the Developer

There is a quiet moment, rarely recognised at the time, when property ceases to be something that is simply owned and becomes something that is used. Not used in the ordinary sense of living in it, holding it, or even passively benefiting from its existence, but used as an instrument. A means to an end. A piece of capital that is no longer sitting still.

It is a subtle shift, and one that sits uncomfortably within the way most people have been taught to think about property. For generations, it has been framed as something almost personal. A home. A long-term investment. A store of value. Something to be held, protected, and eventually passed on or sold. In that framing, property behaves almost like a possession, a chattel in the broader philosophical sense, something that belongs to you and therefore carries with it an expectation that the usual rules of ownership apply.

That expectation runs deep. Because if something is “yours,” then the natural assumption is that what you choose to do with it remains within that same framework. You can improve it, you can alter it, you can sell it. These are seen as extensions of ownership, not departures from it. The transaction, when it comes, is viewed as a simple realisation of an asset. A beginning and an end, neatly contained. But there is a point, and it is not always clearly marked, where that understanding begins to fracture.

It rarely arrives with any declaration. More often it presents itself as a series of small, reasonable decisions. A renovation to freshen things up before sale. A subdivision to make better use of the land. An idea, often encouraged by others, to “add value” because it seems wasteful not to. Each step, taken in isolation, carries a logic that is difficult to challenge. Each feels like a continuation of ownership rather than a transformation of it.

Yet when those steps are viewed together, the character of what is occurring can begin to change.

In the words of the tax man, what was once a passive holding starts to resemble an active undertaking. The property is no longer simply there to be enjoyed or preserved; it is being worked. Decisions are made with an eye to margin rather than maintenance. Costs are incurred not for comfort, but for return. Timeframes tighten. Outcomes are measured not in years, but in completion dates and projected sale prices. And still, the language resists the shift. “I’m just fixing it up.” “We’re only doing one.” “It’s our property, not a business.”

These are not statements designed to mislead. In most cases, they are genuine reflections of how people see themselves. They are not developers, not like Harry Triguboff, at least not in the way that word is commonly understood. They do not have offices or teams or multiple projects running at once. They have a block of land, or a house, and an idea.

But the law, particularly tax law, in its quiet and often inconvenient way, does not concern itself with identity. It does not ask who you believe you are. It looks instead at what has been done, at the substance of the activity rather than the story that surrounds it. And that is where the discomfort begins to surface.

Because once property is no longer merely held, once it begins to be worked with intention toward a result, the nature of the transaction can change with it. What felt like a simple extension of ownership may, in fact, have crossed into something else entirely. Something that carries with it a different set of expectations, a different treatment, and often a different outcome than the one that was originally imagined.

From where I sit, looking in on these decisions as they unfold, this is not an uncommon story. It is not driven by greed or even by ambition in the traditional sense. More often, it is driven by a quiet belief that making something “better” should not alter its nature. That improving what you own should not change how it is seen.

But property, for all its familiarity, does not always behave in a way that aligns with that belief. And it is in that space, between what people think they are doing and what, in substance, they have done, that the real story of the “developer” begins to take shape.

Have you acquired a property with the intention of resale at a profit? Have you undertaken works that fundamentally change its character? Have you subdivided, constructed, or otherwise created something that did not previously exist? Have you organised the activity in a way that reflects planning, execution, and a clear pathway to profit?

If the answer to those questions begins to lean in one direction, then the activity may take on a commercial character, regardless of how it was originally framed.

That is where the greatest misunderstandings tend to arise. Because the transition from capital to income, from passive holding to active enterprise, and the tax consequences they invoke, is not always marked by a single, obvious step. It is often the result of incremental decisions that, when viewed together, cross a line that was never consciously acknowledged. And once that line is crossed, the consequences follow.

Because in property development, more than anywhere else, the difference between what you believe you are doing and what the law determines you have done can be significant.

This is where the concept of “stock” begins to emerge, and with it, a level of confusion that I have seen repeated more times than I care to count.

Clients arrive having spent significant amounts of money. The project is underway, sometimes well advanced. There are architects, engineers, certifiers, builders, and financiers all playing their part. Cash is flowing out at a rate that feels entirely disproportionate to anything that has come before. And sitting behind it all is an expectation, often unspoken at first, that this expenditure must somehow translate into a tax benefit along the way.

It feels logical. Money out should mean deduction in. But that is not how revenue account operates.

When a property is treated as trading stock, the focus shifts from the individual expense to the overall outcome. The costs do not disappear, but they do not behave in the way most expect. They accumulate within the project itself. They sit there, embedded in the value of what is being created, waiting for the point at which the project is realised. Until that moment, they are largely silent from a tax perspective.

This creates a disconnect that is difficult for many to reconcile.

From a practical point of view, the developer is under pressure. Interest is accruing. Bills are being paid. Time is being invested. Yet from a tax perspective, there is often little to show for it in the short term. No immediate deduction. No relief that mirrors the outflow. Just a growing number on a balance sheet that represents stock, not expense. And this is not theory. This is the reality of how these projects unfold. Just as that reality begins to settle in, the next shift often occurs, and it is rarely planned.

Markets change. They always do. What looked like a straightforward development with a clear exit strategy begins to look less certain. Sale prices soften, or at least fail to meet expectations. Finance becomes tighter. The appetite for risk diminishes, often at exactly the wrong time.

And so the conversation changes. “We might hold it for a while.” “Let’s rent it out until things improve.” “It can be an investment instead.”

On the surface, this feels like a sensible, even prudent response. Adapt to conditions. Preserve value. Wait for a better opportunity. All entirely reasonable.

But the underlying assumption is that the nature of the asset will change simply because the intention has.

That assumption is where the problems begin. Because the structures that were put in place at the outset were rarely designed with long-term investment in mind. Entities may have been established specifically to undertake a development. GST registrations put in place. Financing structured around turnover and sale. Decisions made, sometimes quickly, sometimes without full appreciation, that align far more closely with a revenue outcome than a capital one.

Those decisions do not unwind simply because the market has shifted.

Instead, they remain embedded in the history of the project. The activity that has taken place, the manner in which it has been conducted, and the purpose that can be inferred from it all continue to influence how the property is viewed. The fact that the property is now being rented does not, of itself, transform its character. And this is where expectation and reality begin to diverge in a very real way.

Many assume that by holding the property, time will begin to run for capital gains tax purposes. That eventually, when the market improves and the property is sold, the outcome will fall neatly within the capital framework. Perhaps even attracting the discount that has become so familiar in the broader investment landscape.

But in practice, that outcome is far from certain.

Where there is a pattern of activity, or even a single project that carries sufficient indicators of a profit-making intention, the property may never truly escape its revenue character. It can remain, in substance, trading stock, held for eventual resale as part of a broader undertaking. The passage of time does not necessarily change that. Nor does the interim use of the property as a rental.

What matters is the entirety of what has occurred. The intention at the beginning. The steps taken along the way. The systems and structures that supported the activity. The repetition, or even the capacity for repetition. These are the factors that inform the outcome, not the label applied once circumstances change. And so, in a very practical sense, capital gains tax may never enter the conversation at all.

Not because it was overlooked, but because the nature of the activity has placed the asset outside of its reach. The property, despite being held, despite being rented, despite the passage of time, continues to be treated as stock within a revenue framework.

That is not an academic distinction. It is the difference between outcomes that can vary significantly, both in timing and in magnitude.

From where I sit, this is one of the more confronting aspects of property development for those who never set out to be developers. The realisation that the system is not responding to what they believe they are doing, but to what, in substance, they have done. And that distinction, once it reveals itself, is not easily undone. And it is here, perhaps more than anywhere else in this space, that a particular mindset begins to show itself. Not loudly, not in a way that is immediately obvious, but quietly embedded in the way decisions are justified after the fact.

“I think it, therefore it is.”

It sounds almost harmless when put that way. A reflection of belief. A reliance on intention. A sense that if the motivation is genuine, then the outcome should align with it. But in the context of property, and particularly where development activity has taken place, it can be a very dangerous course of action to rely on.

Because the system does not operate on belief.

It does not ask what you intended in isolation, nor does it give weight to a position simply because it feels reasonable. It looks instead to what has been done, to the sequence of actions, to the structures that were put in place, and to the commercial reality that emerges from them. The narrative that is formed after the event, no matter how sincerely held, is tested against that reality. And more often than not, it does not prevail.

I have sat in too many conversations where the starting point is not, “What have we actually done here?”, but rather, “This is how we want it to be treated.” The distinction between those two positions is subtle in language, but profound in outcome. One invites analysis. The other assumes it.

In the context of a development that has shifted, or is attempting to shift, into an investment, that assumption becomes particularly problematic. The belief that holding the property, renting it, or simply waiting long enough will, of itself, reshape the tax outcome is deeply ingrained. It feels logical because it aligns with the broader narrative of property ownership that most people are familiar with.

But that familiarity can be misleading. Because once the activity has taken on a revenue character, once the property has, in substance, become part of a profit-making undertaking, it is not easily reclassified by a change in mindset alone. The earlier decisions do not fade into the background. They continue to speak, often more loudly than the current intention. And this is where the risk compounds.

Decisions begin to be made on the basis of what is believed to be true, rather than what can be supported. Structures remain in place that are inconsistent with the new narrative. Reporting positions are adopted that assume a capital outcome, despite a history that points elsewhere. Time passes, reinforcing the belief that the position must be correct, because nothing has challenged it.

Until something does. And when it does, it rarely arrives as a gentle correction. It comes with the weight of hindsight, applied through a framework that was always there, but perhaps not fully considered. The analysis is not confined to the present moment. It reaches back, examining the entirety of the activity, drawing conclusions not from what was hoped, but from what can be demonstrated.

At that point, “I thought” carries very little weight.

Not because it lacks sincerity, but because it lacks substance in the context in which it is being tested.

From where I sit, this is one of the more consistent and avoidable pitfalls. Not the initial decision to develop, nor even the shift in response to market conditions, but the reliance on belief as a substitute for analysis. The comfort of assuming that intention will shape outcome, rather than recognising that, in this space, outcome is determined by something far more grounded.

It is determined by what was done. And that is not something that can be rewritten after the fact, no matter how strongly the alternative is believed.

Take what is, on the surface, a very common scenario. A block of land is purchased with a clear plan in mind. Not a passive hold, not a long-term investment, but a project. A duplex is to be constructed, the titles separated, and the properties sold. The intention is not dressed up as anything else. It is about margin. It is about taking something in its raw state, improving it, and realising a profit. If it works, there is often the quiet thought that it might be done again.

The project unfolds in the usual way. Plans are drawn, approvals obtained, finance arranged, and construction commences. Costs accumulate steadily, and every decision is made with an eye toward the end value. At that point, whether the taxpayer chooses to describe it this way or not, the activity bears all the hallmarks of a profit-making undertaking. The duplex is not being created to be held in the ordinary sense. It is being created to be sold.

Then, as is often the case, the market intervenes.

One side of the duplex is sold. Perhaps the price is acceptable, perhaps it is below expectation, but the transaction occurs. The second side, however, does not move. It sits. Interest continues to accrue, holding costs remain, and the decision is made, almost out of necessity, to change course. Rather than force a sale into an unfavourable market, the property is retained and rented.

From a commercial perspective, it is a rational response. It preserves cash flow, provides some level of income, and allows time for conditions to improve. From the taxpayer’s point of view, the experience has shifted. They are now landlords. Rent is being received. The property feels like an investment, and over time that feeling begins to settle into something more permanent.

This is where the disconnect begins to take shape.

The fact that one half of the duplex has already been sold is not just a standalone event. It is part of a broader narrative. It reflects the original intention behind the acquisition and development of the property. The project was conceived with a view to sale, and the execution of that plan, even in part, reinforces that character. The remaining property does not exist in isolation. It sits as the balance of that same undertaking.

Again, that word “intention” raises its ugly head and with it an expectation.

At this point, another step is often introduced. With the build complete and one sale achieved, there is a perception of equity. A refinance follows. Funds are drawn, sometimes to reduce other debt, sometimes to fund new opportunities. From a financial perspective, it can be a sensible move, unlocking value that has been created through the project.

However, this is where a common misconception takes hold.

The refinance is seen, consciously or otherwise, as a reset. A moment where the property transitions into something new. It is now held, it is generating rental income, and it is financed under a new arrangement. All of these factors contribute to the belief that the property has moved from a development outcome into an investment asset.

But in substance, very little has changed.

The refinance does not alter the nature of the asset. It does not rewrite the history of how the property came to exist in its current form. It is simply a change in the way the asset is funded. The underlying activity, the acquisition, the construction, and the partial realisation, all remain part of the story that defines how the property is viewed.

I harp back to that word “intention”

What tends to happen over time is that the taxpayer’s experience begins to override that history. The longer the property is held, the more it feels like an investment. Rent is received regularly, tenants come and go, and the original development phase starts to feel like something that happened in the past, rather than something that continues to influence the present.

But the framework within which the outcome is assessed does not operate on that same sense of passage.

When the remaining property is eventually sold, the question is not simply how long it has been held or whether it has been rented. The question is what, in substance, the property represents. Is it the realisation of a capital asset held for investment, or is it the completion of a profit-making undertaking that began at the point of acquisition?

In many cases, particularly where the facts follow the pattern just described, the latter position is difficult to displace.

The presence of rental income does not, of itself, convert the asset into capital. Nor does the refinance. Even the passage of time, while relevant in other contexts, may carry limited weight where the original intention and subsequent actions point clearly toward a development activity. The property can remain, in effect, part of a revenue account, despite being held and used in a manner that feels entirely consistent with investment.

This is not an unusual outcome, nor is it confined to large-scale operators or repeat developers. It can arise from what is, at a taxpayer level, a single project. The fact that it is isolated does not necessarily change its character if the elements of a profit-making undertaking are present.

From where I sit, this is one of the more practical examples of the broader principle. The nature of the asset is not determined by what it feels like at a given point in time, but by the totality of what has been done. The initial intention, the execution of the project, the partial sale, and the structures surrounding it all contribute to that assessment. And once that character is established, it is not easily shifted by a change in circumstances, even when that change feels entirely reasonable.

There is a variation on this theme that appears with almost predictable regularity, and it usually arrives with a level of confidence that suggests the outcome has already been settled before the question is even asked, and borne out of a blending of truth and interpretation I have seen at the get rich quick in property seminars.

The plan is presented as neat, almost elegant in its simplicity. Live in one side of the duplex for twelve months, sell it, access the Principal Place of Residence exemption, then move into the other side. That second property, having been rented for a short period, is then occupied for another twelve months before being sold, again with the expectation that the same exemption will apply. No capital gains tax. Two properties, two exemptions, and a sense that the system has been navigated, if not outmanoeuvred.

On paper, it sounds structured. Thought through. Even disciplined.

In practice, it is rarely that straightforward.

The difficulty lies not in the steps themselves, but in the assumption that those steps, taken in sequence, are sufficient to determine the tax outcome. The focus is placed almost entirely on periods of occupancy, as though the act of living in a property for a defined period carries with it a kind of cleansing effect. That by stepping into the property as a residence, the history of how it came to exist can be set aside.

But that is not how the framework operates.

The Principal Place of Residence exemption sits within the capital gains tax regime. It is designed to apply to assets that are, in substance, capital in nature. It assumes that the property has been held as a residence, not created as part of a profit-making exercise. When a property has been brought into existence through a development activity with a clear intention of sale, the starting point is not capital.

It is revenue. And that distinction matters.

In the duplex scenario, the properties did not arise from a passive acquisition followed by incidental improvement. They were constructed with a view to realisation. The fact that one is sold reinforces that intention. The second, even if held for a period, does not lose that character simply because the taxpayer chooses to move into it.

Living in the property may change the experience of ownership, but it does not necessarily change the nature of the asset.

What tends to be overlooked is that the act of development, particularly where it is carried out with a profit-making purpose, can place the entire project outside the capital gains framework from the outset. If the profit on sale is properly characterised as ordinary income, then the question of a capital gain, and by extension any exemption that might apply to it, does not arise in the way that is being assumed.

There is, in effect, nothing for the exemption to attach to.

Even if one were to set that aside for a moment, the sequence of events still raises further questions. The initial intention, the construction, the subdivision, the partial sale, the interim rental, and the subsequent occupation all form part of a single continuum. The law does not isolate each phase and assess it in a vacuum. It looks at the totality of what has occurred and asks whether the overall activity is consistent with the holding of a residence, or the execution of a profit-making scheme.

In many cases, the answer is not favourable to the narrative being relied upon.

The short periods of occupation, particularly when they align so closely with points of sale, can be seen less as evidence of genuine residential use and more as steps taken in the process of realising the asset. The interim rental does little to assist, and may in fact reinforce the notion that the property was being managed as part of a broader commercial activity. And so, the expectation of “no CGT” begins to unravel, not because the rules are being applied harshly, but because the starting premise was flawed.

The assumption that the outcome is governed solely by periods of occupancy ignores the more fundamental question of character. If the property is, in substance, part of a revenue undertaking, then the profit on sale will be treated accordingly. The capital gains provisions, including the Principal Place of Residence exemption, do not override that position simply because the taxpayer has moved into the property for a time.

From where I sit, this is one of the clearer examples of the danger in relying on a sequence of steps without fully considering the underlying nature of the activity. The plan feels structured, and in isolation each step appears defensible. But when viewed as a whole, it often tells a very different story. And that story is not one of passive ownership interrupted by periods of occupation.

It is one of development, staged realisation, and an outcome that follows the substance of that activity, rather than the form in which it is later presented.

It always seems to circle back to intention, although not in the way most people expect.

There is a tendency to treat intention as something that can be declared, almost like a position taken at a point in time. “This is what I intend to do,” and therefore that intention should carry through to the outcome. It is an attractive idea, because it places control firmly in the hands of the person undertaking the activity. If you can define your intention, then surely you can define the result.

But intention, in this space, is not what is said. It is what is evidenced. And that is where the familiar expression begins to carry weight. If it quacks like a duck, if it walks like a duck, if every step along the way looks and feels like a duck, then calling it something else does not change what it is.

Dress it up as an investment. Structure it as a residence. Move in, move out, refinance, rent, hold. Each of those actions, taken individually, can be explained. They can be justified. They can be aligned with a narrative that sounds entirely reasonable when viewed in isolation.

But the law does not assess them in isolation.

It looks at the pattern. The sequence. The consistency of behaviour from acquisition through to eventual sale. And when that pattern reflects a profit-making undertaking, when the decisions align with development activity, when the property is acquired, improved, and realised in a manner that is commercially coherent, then the conclusion tends to follow.

Not because of what the taxpayer hoped it would be, but because of what it actually is.

In the duplex example, living in one side, then the other, renting in between, refinancing along the way, all of these steps can be layered over the original plan. They can create the appearance of something more passive, more aligned with the traditional notion of property ownership. But they do not erase the earlier actions. They do not break the thread that runs from the initial acquisition through to the final sale.

If anything, when viewed together, they often reinforce the continuity of the undertaking. Because the timing aligns. The decisions follow one another in a way that is not random, but connected. One side is sold. The other is held, then occupied, then sold. It has the rhythm of execution, not the randomness of long-term ownership. It carries the hallmarks of a plan being adapted, not abandoned. And that is the point that tends to be missed.

Changing the wrapping does not change the contents.

From where I sit, this is less about technical interpretation and more about recognising a pattern that, once seen, is difficult to unsee. The instinct to rely on labels, on short periods of occupancy, on the mechanics of refinancing or rental income, is understandable. It provides a sense of structure, a belief that the outcome can be guided. But the underlying question remains unchanged. What have you actually done?

If the answer to that question, when stripped back to its essentials, resembles a development carried out with a view to profit, then the outcome will follow that character. No matter how it is presented, no matter how it is sequenced, no matter how strongly it is believed otherwise.

Because in the end, in this area more than most, if it quacks like a duck, it tends to be treated as one.