3.8.1 Change in status means a change in tax treatment

A change in the status of the property leads to a change in the tax treatment. So when an investment asset becomes trading stock, profits on the sale of the property are taxed as income instead of capital. Likewise, when a trading asset becomes an investment, profits are subject to CGT instead of income tax.

However, the consequences are not limited to the treatment of the sale proceeds when the asset is eventually sold. An immediate tax charge can also arise on a change of status.

3.8.2 Investment asset becomes trading stock

When an investment property becomes a trading asset, the owner is deemed to have entered into two transactions:

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