ATO Interpretative Decision

ATO ID 2002/700 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the profit derived from the subdivision and sale of rural land assessable income in the hands of the taxpayer under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The profit derived from the subdivision and sale of rural land is not assessable income in the hands of the taxpayer under section 6-5 of the ITAA 1997.

Facts

In the 1970's the taxpayer purchased farming land. Several types of farming were attempted and found unprofitable over an extensive period. Due to the unprofitability of the farming business the taxpayer rezoned and subdivided the land.

Roads were constructed, underground power was installed and trees were planted. Little of the subdivision work was performed by the taxpayer who relied on town planners, engineers, contractors and consultants to design, plan and sell the allotments.

The taxpayer had not conducted any other activities relating to property development.

Reasons for Decision

In determining whether an isolated transaction amounts to a business operation or commercial transaction, paragraph 13 of Taxation Ruling TR 92/3 outlines a number of factors which must be considered. The factors are related to the present case as follows:

•

the sale of the subdivided land was precipitated by the inherent unprofitability of the land

•

the land was originally purchased for the purpose of conducting farming

•

the land was used for farming activities for an extensive period prior to subdivision

•

little of the subdivision work was performed by the taxpayer

•

the taxpayer had no other business relating to property development

•

the taxpayer relied on town planners, engineers, contractors and consultants to design, plan and sell the allotments.

The facts in this case are materially similar to the facts in Casimaty v. FC of T (1997) 151 ALR 242, 97 ATC 5135, 37 ATR 358, where the proceeds were held to not be income according to ordinary concepts, but rather constituted the mere realisation of a capital asset, carried out in an enterprising way so as to secure the best price. Consequently, the profit derived from the subdivision and sale of the land by the taxpayer is not assessable income under section 6-5 of the ITAA 1997.

Year of income:  Year ended 30 June 2000 Year ended 30 June 2001 Year ending 30 June 2002 Year ending 30 June 2003 Year ending 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   Section 6-5

Case References:
Casimaty v. FC of T
   (1997) 151 ALR 242
   97 ATC 5135
   37 ATR 358

Related Public Rulings (including Determinations)
Taxation Ruling TR 92/3

Keywords
Profit making purpose
Isolated transactions
Property development industry

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  11 July 2002

ISSN: 1445-2782