Taxation of Development and Construction

Introduction and Context

Real-estate development converts land, finance, labour, materials, professional services and regulatory permissions into a completed asset. Taxation affects every stage of this process: land acquisition, feasibility, construction, borrowing, sales, leasing, transfer of development rights and eventual disposal. Because tax systems differ by jurisdiction, this chapter presents a general analytical framework. Specific rates, filing dates, exemptions and statutory definitions must always be verified against the law applicable to the project.

Development taxation is difficult because the tax result rarely follows the legal form of a single transaction. A landowner may contribute land to a joint venture, a developer may receive consideration in cash or finished units, and a construction contractor may be paid progressively under a long-term contract. The same economic project can therefore generate different consequences depending on whether the participant is treated as a developer, contractor, investor, trader or service provider.

The central professional task is to match the economic substance, legal documentation, accounting records and tax treatment of the project. Errors commonly arise when construction costs are deducted immediately even though they relate to unsold inventory, when borrowing costs are capitalized beyond the period permitted by law, or when an investor is incorrectly classified as a property developer.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Explain the tax architecture of land development and construction projects.
2. Distinguish developer, contractor, investor and joint-venture activities.
3. Identify direct and indirect development costs and determine when they are capitalized.
4. Apply work-in-progress and inventory valuation principles.
5. Analyze capitalization of interest and project overheads.
6. Evaluate affordable-housing incentives and their compliance conditions.
7. Identify tax, governance and documentation risks in development projects.
8. Apply the framework to a practical development case.

1. The Tax Architecture of a Development Project

A project may be exposed to several categories of tax:

The tax base is not always the accounting profit. A tax statute may prescribe special rules for inventory, long-term contracts, interest deductibility, related-party pricing, bad debts, depreciation or development incentives. Therefore, project accounts should maintain a reconciliation between accounting profit and taxable income.

A useful project-tax timeline is:

Acquisition → Planning and approvals → Construction → Completion → Sale or lease → Defect period and final settlement

At each stage, management should identify the taxable event, the relevant taxpayer, the tax base, the evidence required and the timing of recognition.

2. Classification: Developer, Contractor or Investor

Classification is one of the most consequential judgments in real-estate taxation.

2.1 Developer

A developer acquires or controls land and undertakes activities intended to create and sell, lease or otherwise commercialize improved property. Development normally involves planning, financing, procurement, construction management, marketing and risk-bearing. Property held for sale is generally treated as trading inventory or work-in-progress under the applicable accounting and tax rules, rather than as a long-term investment.

Indicators of development include:

• subdivision, rezoning or obtaining development permissions;
• construction or substantial alteration of buildings;
• marketing units before completion;
• borrowing linked to construction and sales milestones;
• repeated property-development transactions;
• entrepreneurial exposure to cost overruns, market prices and completion risk.

2.2 Construction contractor

A contractor provides construction services for an owner or developer. The contractor generally does not own the underlying land and earns contract revenue or a construction margin. Materials, labour and subcontract costs are ordinarily costs of contract performance, subject to the applicable revenue-recognition and tax rules.

A contractor may become a developer if it acquires land, assumes development risk, sells completed units or participates in profits rather than merely receiving a construction price.

2.3 Investor or landlord

An investor acquires property primarily to earn rental income, preserve capital or benefit from long-term appreciation. Property held to earn rentals may be classified as an investment property for accounting purposes, while the tax treatment may involve depreciation, capital allowances, interest deductions and capital-gains rules.

The intention at acquisition is relevant but not conclusive. Subsequent conduct, frequency of transactions, financing structure, development activity and the manner of sale may override an asserted investment intention.

2.4 Trading stock versus capital asset

The distinction is usually fact-sensitive. The following framework is useful:

No single factor should be applied mechanically. A property may change character, but the tax consequences of conversion depend on local law. A documented board decision, feasibility study, financing plan and evidence of actual use are important in defending classification.

3. Land Development and Development Rights

Land is often the largest project input. Tax analysis must distinguish among:

1. purchase of land outright;
2. purchase of a leasehold interest;
3. acquisition of development rights;
4. a joint venture with a landowner;
5. a land contribution in exchange for cash, units or a profit share; and
6. a development-management arrangement.

The acquisition cost of land usually includes the purchase price and directly attributable acquisition costs such as legal fees, transfer duties and registration charges, subject to the governing tax rules. A general expression for land cost is:

where C_L is total land cost, P_L is the purchase price, D_T is transfer or stamp duty, F_L is directly attributable legal and brokerage cost, and C_A represents other directly attributable acquisition costs. The expression applies only where the listed costs are capitalizable under the relevant accounting and tax rules; recoverable indirect taxes should not be included in cost.

Development rights may be treated as an intangible right, an interest in land or a project cost, depending on local law and the legal instrument. The contract should identify the duration, geographic scope, permitted use, consideration, renewal rights and responsibility for approvals. Tax authorities may challenge an arrangement that lacks commercial substance or disguises a transfer of land.

Joint ventures and land-for-units arrangements

A landowner may contribute land and receive cash, completed apartments or a percentage of sales. The tax point may arise on contribution, transfer, completion, sale of units or receipt of consideration, depending on the jurisdiction. A robust analysis asks:

• Who owns the land during construction?
• Who controls the project bank account?
• Who bears cost overruns and unsold inventory risk?
• Is the landowner receiving a fixed consideration or a residual profit share?
• Is the arrangement a partnership, company, co-development agreement or agency relationship?
• Are related-party pricing and anti-avoidance rules engaged?

The legal documents, accounting treatment and actual conduct should be consistent. Artificially describing a sale as a service arrangement, or a development partnership as a simple agency, may create assessment, penalty and reputational risks.

4. Construction Costs and Capitalization

4.1 Direct costs

Direct development costs are costs that can be traced economically to a particular project or unit. They typically include:

• land and development-right costs;
• site preparation, demolition and excavation;
• building materials;
• direct construction labour;
• subcontractor charges;
• architects, engineers and surveyors;
• planning, permit and inspection costs;
• project-specific insurance;
• testing and commissioning; and
• directly attributable financing costs where permitted.

The test is not whether an invoice says “project cost.” The cost must be necessary for bringing the asset or inventory to its present condition and location, and it must be reliably measurable.

4.2 Indirect costs and overhead

Indirect project costs may include site-office salaries, project management, security, utilities, information systems, insurance, depreciation of construction equipment and head-office support. A reasonable allocation is generally required when an overhead contributes to construction or development.

An allocation formula should be systematic and consistently applied. For example, overhead may be allocated using direct construction cost, labour hours, floor area or machine hours, but the chosen driver should reflect resource consumption. If total allocable overhead is O and the allocation base for project i is B_i, the project allocation may be expressed as:

where O_i is overhead allocated to project i, O is total allocable overhead, and ∑B_i is the sum of allocation bases for all qualifying projects. The units of B_i must be consistent across projects. Costs unrelated to construction, abnormal waste and general administrative expenditure that does not contribute to bringing inventory to its present condition should not be capitalized merely to defer tax.

4.3 Borrowing costs and interest capitalization

Interest capitalization is generally justified when borrowing costs are directly attributable to acquiring, constructing or producing a qualifying asset, and substantial activities necessary to prepare the asset are in progress. The capitalization period commonly begins when all or most of the following conditions exist:

• expenditure on the asset has been incurred;
• borrowing costs are being incurred; and
• activities necessary to prepare the asset are in progress.

Capitalization normally ceases when substantially all activities necessary to prepare the asset for its intended use or sale are complete. Extended abnormal interruptions may require suspension. The exact rules depend on the applicable accounting standard and tax statute; tax law may cap, defer or disallow the accounting amount.

For a specific construction loan, capitalizable interest is commonly based on actual interest incurred, adjusted for temporary investment income where required. For general borrowings, a weighted-average capitalization rate may be used under applicable standards:

where r is the weighted-average borrowing rate, I_j is interest incurred on borrowing j during the period, and B_j is the principal balance of borrowing j. Capitalized borrowing cost for qualifying expenditure E over the relevant time fraction t is then conceptually:

Here, BC is borrowing cost, E is the average qualifying expenditure, r is an annual rate, and t is the fraction of a year. This simplified calculation assumes a stable rate and expenditure pattern. Actual calculations may require daily or monthly weighting, exchange-rate adjustments, commitment fees and statutory limits. Capitalization must not continue merely because debt remains outstanding after the asset is ready for sale or use.

Worked Example 1: Capitalized interest

An apartment project incurs average qualifying expenditure of CU 12,000,000 over nine months. A specific construction loan bears interest at 10% per annum. Assume the project is actively under construction throughout the nine months, the loan is used only for the project and no tax limitation applies.

The capitalizable interest is CU 900,000. If construction stops for three months because of a preventable financing failure, the applicable standard may require suspension during the abnormal interruption. The tax deduction, if any, must then be tested separately under interest-limitation rules.

5. Work-in-Progress and Inventory Valuation

Development inventory includes land held for development, incomplete buildings and completed units held for sale. Work-in-progress (WIP) represents costs accumulated before revenue recognition or sale. A common accounting principle is that inventory is measured at the lower of cost and net realizable value, where applicable.

where C is inventory cost and NRV is net realizable value. Net realizable value is generally estimated selling price in the ordinary course of business less costs of completion and costs necessary to make the sale. The formula is a measurement principle, not a universal tax rule; tax law may prescribe a different valuation or restrict recognition of unrealized losses.

Development cost per unit can be estimated as:

The denominator must reflect legally saleable units or an appropriate equivalent measure, not merely gross floor area. Shared infrastructure, parking, community facilities and land should be allocated consistently. If units differ substantially in size or specification, weighted floor area or expected relative selling values may be more appropriate than a simple unit count.

Revenue and cost recognition

Tax timing may follow sale, transfer of control, completion, possession, billing milestones or a statutory project-completion method. A developer should not assume that issuing an invoice automatically creates taxable revenue, nor that cash receipt always determines the tax point.

For long-term construction contracts, tax rules may require recognition by stage of completion, completed contract, milestone or another prescribed method. A cost-to-cost measure of progress is sometimes used:

This measure is appropriate only when costs incurred faithfully represent performance and estimates are reliable. Costs for materials delivered but not yet installed may need special treatment because they can distort progress. Expected losses on an onerous contract may require immediate recognition under accounting rules, but tax deductibility depends on legislation.

6. Affordable Housing Incentives

Affordable-housing incentives are policy instruments intended to increase the supply of housing for specified income groups or price bands. They may take the form of:

• reduced corporate or profits-tax rates;
• accelerated deductions or enhanced capital allowances;
• exemption or reduction of transfer duties;
• VAT or GST relief;
• interest subsidies or government grants;
• density bonuses, concessional land or infrastructure support; and
• tax credits linked to qualifying units.

Eligibility often depends on cumulative conditions rather than a single label. Typical conditions include maximum unit size, price ceilings, buyer-income limits, location, minimum affordable-unit proportions, construction deadlines, occupancy restrictions and reporting obligations. Some regimes impose a clawback if units are sold, rented or used outside the permitted conditions.

A developer should prepare an incentive matrix showing each condition, responsible officer, evidence, compliance date and consequence of failure. The economic value of an incentive should be discounted for uncertainty. For example, a nominal tax saving of CU 2,000,000 may not be economically available if it depends on uncertain approvals and has a high clawback probability.

Incentives also raise policy and ethical issues. Developers may attempt to reclassify market-rate units, split contracts or manipulate floor areas to qualify. Such conduct can lead to penalties and undermine public housing objectives. Transparent eligibility testing and independent certification are therefore essential.

7. Developer versus Investor: A Decision Framework

The following decision sequence supports classification:

1. Identify the legal rights acquired and the stated purpose at acquisition.
2. Examine whether substantial development activity is planned or undertaken.
3. Determine how the project is financed and which party bears market risk.
4. Review the pattern of income: rent, fixed construction fee, sales proceeds or profit share.
5. Examine the entity’s history and organizational capability.
6. Analyze actual conduct, including marketing, subdivision and sales timing.
7. Consider whether the property was later converted from inventory to investment property or vice versa.
8. Document the conclusion and identify the tax consequences of alternative classifications.

Classification should be revisited when facts change. A developer that retains completed units for rental may need to account for a transfer from inventory to investment property at the relevant date, while tax law may treat the retained units as a deemed sale, a capital conversion or continuing trading stock.

8. Detailed Applied Case: Riverside Affordable Residences

The following is a fictional illustrative case. Currency units are denoted CU, and statutory outcomes must be adapted to the applicable jurisdiction.

Background

Riverside Developments Ltd acquires a brownfield site for CU 8,000,000. Transfer duty and legal costs total CU 400,000. The company plans 100 apartments, of which 30 will satisfy a government affordable-housing program. Construction is expected to take 18 months. Riverside borrows CU 10,000,000 at 9% per annum under a project facility. It also has a general corporate loan at 8%.

The company contracts with an independent builder for CU 14,000,000, appoints architects and engineers for CU 1,200,000, and expects project infrastructure costs of CU 2,000,000. At year-end, 60% of construction activity is complete. Twenty affordable units have been presold, but completion and transfer have not occurred. Riverside intends to retain ten market-rate apartments for rental after completion.

Problem

Management must determine:

• which costs form development inventory;
• how much interest can be capitalized;
• how to measure WIP;
• whether presales create current taxable revenue;
• how to classify the ten retained apartments; and
• whether the affordable-housing incentive is available.

Analysis

Land and directly attributable acquisition costs are initially:

Assume the builder, professional and infrastructure costs are directly attributable and incurred evenly over the construction period. Total pre-interest project cost is:

The project loan is used solely for construction. If CU 10,000,000 is outstanding for the full 18-month construction period, a simplified interest amount is:

However, this amount should not automatically be capitalized in full at year-end. Capitalization depends on actual qualifying expenditure, the period of active construction and the applicable standard. If the first year contains 12 months of active construction and average qualifying expenditure is CU 17,000,000, the illustrative capitalized amount using the specific 9% rate is:

This result exceeds the interest actually incurred on the project loan during the year if only CU 10,000,000 is outstanding, so the amount capitalized would be capped at actual eligible borrowing costs under the relevant framework. The example demonstrates why a rate applied to expenditure is not a license to capitalize more than the borrowing cost incurred.

At year-end, management should accumulate eligible costs in WIP. If 60% is a reliable cost-to-cost measure and all pre-interest costs are incurred proportionately, the indicative WIP before any applicable interest is:

This is only an illustration. Actual WIP must be based on costs incurred, not a percentage applied to the budget, unless the percentage is being used solely as a progress estimate for revenue recognition.

Presales do not necessarily create taxable revenue at contract signing. Riverside must examine the tax point: transfer of control, completion, possession, enforceable billing milestone or a statutory project rule. Deposits may be liabilities until the relevant event occurs. VAT or GST may nevertheless be triggered at an earlier invoicing or payment point under local law.

The ten apartments intended for rental should not be casually excluded from development inventory. At completion, Riverside should document the change in intended use and apply the relevant accounting and tax rules. A tax authority may argue that the original development activity was a trading operation and that retention represents a conversion after inventory was created.

The affordable units qualify only if price, size, buyer, completion and occupancy conditions are met. Riverside should not recognize the incentive as certain until approval and compliance evidence are sufficiently established. It should track the 30-unit commitment, including the 20 presold units and the ten remaining units, and model a clawback if the project misses the completion deadline.

Approach and solution

Riverside should:

1. maintain separate project ledgers for land, construction, professional costs, infrastructure, finance and overhead;
2. reconcile accounting WIP to the tax computation;
3. document the borrowing-cost period and any interruptions;
4. maintain a unit-level cost-allocation schedule;
5. obtain written confirmation of affordable-housing eligibility;
6. test the VAT or GST treatment of land, construction invoices, presales and final transfers;
7. document the business rationale for retaining ten units; and
8. obtain tax advice before amending the structure or transferring units to a related entity.

Outcome

The case illustrates that the tax result is a sequence of linked decisions rather than a single calculation. Correct classification, evidence of costs, controlled revenue timing and incentive compliance may produce a materially different result from an approach based solely on cash payments or invoice dates.

Learning points

• Project cost and tax deduction are not synonymous.
• Interest capitalization is limited by both qualifying expenditure and actual eligible borrowing costs.
• Presales require analysis of the statutory recognition point.
• Affordable-housing relief is conditional and can be clawed back.
• Retention for rental does not automatically convert development activity into investment activity from the beginning.

9. Governance, Compliance and Ethical Issues

Development projects involve large transactions, related parties and public approvals. Effective governance should include:

• a tax-risk register approved by senior management;
• segregation of duties for procurement, payment and cost certification;
• contractor tax-verification and withholding controls;
• monthly reconciliation of quantity-surveyor certificates to invoices;
• documentation of related-party prices and financing terms;
• preservation of permits, contracts, valuations and completion certificates;
• review of indirect-tax invoices and input-credit claims; and
• a process for uncertain tax positions and voluntary disclosure.

Tax planning is legitimate when it reflects genuine commercial activity and complies with the law. Aggressive arrangements may invoke general anti-avoidance rules, transfer-pricing provisions, substance-over-form doctrines or beneficial-ownership rules. Ethical practice is especially important in affordable housing, where manipulation can transfer public benefits to private parties without delivering the intended social outcome.

10. Technology, Data and Contemporary Practice

Project-management platforms increasingly connect budgets, contracts, building information models, invoices and progress certificates. Properly configured systems can identify duplicate invoices, compare actual costs with approved budgets and allocate costs to units. Artificial intelligence can assist with anomaly detection and document classification, but it should not make unsupported tax judgments.

A defensible technology environment requires:

• a controlled chart of accounts linked to project codes;
• versioned cost-to-complete estimates;
• an audit trail for manual adjustments;
• human review of tax classifications;
• access controls and retention policies; and
• reconciliation between enterprise systems, banking records and statutory returns.

Emerging issues include taxation of digital development platforms, tokenized property interests, remote design services, carbon-related construction incentives and the interaction between environmental regulation and tax relief. These developments reinforce the need to monitor legislation throughout the project life cycle.

11. Challenges and Limitations

Several limitations affect development-tax analysis:

1. Jurisdictional variation: definitions of construction, sale, capital asset, affordable housing and taxable supply differ substantially.
2. Timing uncertainty: legal transfer, economic completion, possession and invoicing may occur at different times.
3. Estimation risk: WIP, cost-to-complete and net realizable value depend on forecasts.
4. Mixed-use projects: commercial, residential, affordable and retained units may require different allocations.
5. Changing intentions: a project may shift from sale to rental or from rental to sale.
6. Related-party complexity: landowners, developers, contractors and financiers may belong to one group.
7. Regulatory change: incentives and indirect-tax rules can change during construction.

The appropriate response is not false precision. It is a documented range of outcomes, sensitivity analysis, professional judgment and timely review.

Best-Practice Checklist

Before filing a return or claiming an incentive, the project team should confirm that:

• land ownership and development rights are documented;
• the entity’s developer, contractor or investor status is supported by facts;
• direct and indirect costs are separately coded;
• overhead allocation is rational and consistently applied;
• interest capitalization complies with accounting and tax limits;
• WIP agrees with supporting invoices and certificates;
• inventory is tested against net realizable value where applicable;
• revenue timing is supported by contracts and law;
• VAT or GST treatment has been reviewed transaction by transaction;
• affordable-housing conditions are evidenced;
• related-party transactions are priced and documented; and
• tax positions are reviewed when project facts change.

Chapter Summary

Taxation of development and construction requires an integrated analysis of legal rights, commercial purpose, accounting classification and statutory timing. A developer generally creates and commercializes property, a contractor supplies construction services, and an investor holds property for rental or long-term appreciation; however, the final classification depends on the complete facts and actual conduct.

Land, construction, professional services and qualifying project overheads are commonly accumulated in development inventory or WIP when they bring property to its present condition. Borrowing costs may be capitalized only during an appropriate active-construction period and within the limits of actual eligible borrowing costs and applicable tax law. Inventory valuation requires disciplined cost allocation and, where applicable, comparison with net realizable value.

Affordable-housing incentives are conditional policy benefits requiring careful monitoring of price, size, buyer, timing and occupancy requirements. Presales, joint ventures, land-for-unit exchanges and retained rental units create special timing and classification issues. Strong governance, reliable project data, documented assumptions and periodic reassessment are essential to defend the tax position and protect project value.

Key Terms

Developer: A person or entity that undertakes activities to create and commercialize improved real estate.

Construction contractor: A party that provides construction services for an agreed price or margin.

Investor: A person or entity holding property primarily for rental income, capital preservation or long-term appreciation.

Trading stock: Property held for sale in the ordinary course of business.

Capital asset: An asset held for investment or long-term use rather than ordinary resale.

Development rights: Contractual or statutory rights to develop, use or alter land.

Work-in-progress: Accumulated cost of incomplete development or construction.

Inventory: Property held for sale in the ordinary course of business.

Capitalization: Inclusion of an eligible cost in the carrying amount of an asset or inventory rather than immediate expense recognition.

Borrowing costs: Interest and qualifying finance costs associated with borrowings.

Net realizable value: Estimated selling price less costs of completion and sale.

Cost-to-cost method: A progress measure based on costs incurred relative to estimated total costs.

Affordable-housing incentive: A tax or regulatory benefit tied to specified housing conditions.

Clawback: Recovery or reversal of an incentive when eligibility conditions are breached.

Transfer duty: Tax imposed on specified transfers of land or property interests.

Withholding tax: Tax deducted from specified payments and remitted to the tax authority.

Joint venture: A commercial arrangement in which parties share contributions, control, risks or returns.

Substance over form: An approach that considers economic reality rather than merely contractual labels.

Related-party transaction: A transaction between parties with control, influence or common ownership.

Review Questions

5 Short Answer Questions

1. What factors distinguish a developer from a construction contractor?
2. Define work-in-progress in a real-estate development project.
3. Why might a presale not create taxable revenue immediately?
4. State two conditions commonly attached to affordable-housing incentives.
5. What is the purpose of an overhead-allocation base?

5 Long Answer Questions

1. Explain the factors used to distinguish property held as trading stock from property held as an investment.
2. Discuss the principles governing capitalization of borrowing costs during construction.
3. Explain how land, development rights and joint-venture structures create different tax issues.
4. Describe the appropriate approach to inventory and WIP valuation in a mixed-use development.
5. Evaluate the governance controls required to support a development project’s tax position.

3 Analytical / Application Questions

1. A company acquires land intending to build and sell apartments but later retains half the units for rental. Analyze the classification and timing issues that should be reviewed.
2. A developer claims an affordable-housing incentive but fails to meet the completion deadline by six months. Identify the potential tax, financial-reporting and governance consequences.
3. A project has a specific construction loan, general corporate borrowings, presales and significant abnormal delays. Design a framework for determining WIP, capitalized interest and revenue timing.

Multiple Choice Questions with Answers

Question 1

Which fact most strongly indicates that property is held as development inventory?

A. The property is leased for twenty years to a stable tenant.

B. The entity subdivides the land, obtains permits and markets units for sale.

C. The property is held solely as collateral for a bank loan.

D. The property is occupied by the entity as its headquarters.

Correct Answer: B. The entity subdivides the land, obtains permits and markets units for sale.

Question 2

Which cost is most likely to be directly attributable to a construction project?

A. A dividend paid to shareholders

B. A project-specific architect’s fee

C. A penalty for late filing of a tax return

D. A general shareholder-relations expense

Correct Answer: B. A project-specific architect’s fee

Question 3

Under the simplified borrowing-cost example, what is the interest on CU 12,000,000 for nine months at 10% per annum?

A. CU 90,000

B. CU 600,000

C. CU 900,000

D. CU 1,200,000

Correct Answer: C. CU 900,000

Question 4

Capitalization of borrowing costs normally ceases when:

A. The loan agreement is signed.

B. The first invoice is received.

C. Substantially all activities necessary to prepare the asset are complete.

D. The developer begins feasibility studies.

Correct Answer: C. Substantially all activities necessary to prepare the asset are complete.

Question 5

Net realizable value is generally estimated selling price less:

A. Historical land cost only

B. Costs of completion and costs necessary to make the sale

C. All financing raised by the developer

D. Dividends paid by the developer

Correct Answer: B. Costs of completion and costs necessary to make the sale

Question 6

Which measure may be used to estimate progress on a reliable long-term construction contract?

A. Costs incurred to date divided by latest estimated total costs

B. Cash in the bank divided by total borrowings

C. Land area divided by tax rate

D. Selling price divided by number of directors

Correct Answer: A. Costs incurred to date divided by latest estimated total costs

Question 7

Why are affordable-housing incentives normally monitored through an incentive matrix?

A. To eliminate the need for statutory compliance

B. To track multiple eligibility conditions, evidence and deadlines

C. To guarantee that every project receives the incentive

D. To replace construction contracts

Correct Answer: B. To track multiple eligibility conditions, evidence and deadlines

Question 8

A construction contractor is most clearly distinguished from a developer when the contractor:

A. Owns the land and sells completed units for its own account

B. Receives a construction price for services provided to the owner

C. Bears all market risk in unsold apartments

D. Acquires development rights and subdivides the site

Correct Answer: B. Receives a construction price for services provided to the owner

Question 9

If average qualifying expenditure is CU 10,000,000, the annual borrowing rate is 8% and active construction lasts six months, the simplified borrowing cost is:

A. CU 40,000

B. CU 400,000

C. CU 800,000

D. CU 1,600,000

Correct Answer: B. CU 400,000

Question 10

Which practice creates the strongest support for a project tax position?

A. Using one undifferentiated expense account for all projects

B. Relying only on management estimates without invoices

C. Maintaining project ledgers, contracts, certificates and reconciliation controls

D. Changing allocation methods whenever taxable profit increases

Correct Answer: C. Maintaining project ledgers, contracts, certificates and reconciliation controls