Preamble
Only costs that otherwise would be deductible under the statutory provisions relating to allowable deductions (together with the value of the property at the date it was committed to the business operations) are taken into account.
They are not deductible as they are incurred. Instead, such costs are subtracted from the gross proceeds of sale to determine the net profit to be included in assessable income in the year in which the property is disposed of.
This is because the net profit basis of returning income is a departure from the statutory scheme of subtracting allowable deductions from gross income: see comments of Mason J in FC of T v. Whitfords Beach Pty Ltd 82 ATC 4031 at 4040; (1982) 12 ATR 692 at 702; and in Commercial and General Acceptance Limited v FC of T 77 ATC 4375 at 4380; (1977) 7 ATR 716 at 721.
The view that only those costs otherwise deductible under the statutory provisions are taken into account is supported by the remarks of Mason J in the Commercial and General Acceptance Limited (CAGA) case at 4380 to the effect that the inclusion of net profit as assessable income can be reconciled with subsection 51(1) notwithstanding that the calculation does not involve the application of 51(1): see also his Honour's comments in the Whitfords Beach case at 4046.
His Honour's remarks in CAGA and Whitfords Beach indicate that costs which generally would not be allowable under the statutory provisions cannot be subtracted from the gross proceeds of sale in order to calculate the net profit which is included as income under subsection 25(1).
Where the land is subdivided and sold, the value of the land and costs of subdividing and developing it must be apportioned in respect of each allotment. The net profit on the sale of each allotment is included in assessable income in the year of income in which it is disposed of.