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Edited version of your private ruling
Authorisation Number: 1012157434789
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Ruling
Subject: CGT - Subdivision of land
Question 1
Will the subdivision undertaken by you amount to the carrying on of a business or a profit making undertaking?
Answer
No
Question 2
Will the proceeds from the sale of the subdivided land be assessable income under section 6- 5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Question 3
Will the proceeds from the sale of the subdivided land be assessed as a capital gain under section 104-10 of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
01 July 2012
Relevant facts and circumstances
You purchased a property.
You have carried out business operations on the property since it was acquired.
You subdivided the land into four parcels.
You sold three of the parcels of land and continued to use the remaining land to carry out your business operations.
Due to the lack of viability of your business operations and the inability to sell the remaining land in its entirety you are now thinking of subdividing the land yourselves in an attempt to sell the property to the best advantage.
You have no experience in land development and intend to engage the relevant professionals to construct and manage the development, and liaise with council and other contractors. Real estate agents will handle the marketing and sale of the blocks.
You will finance the development in conjunction with your bank and it may be done in stages to finance the ongoing development and sale.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5 and
Income Tax Assessment Act 1997 section 104-10.
Reasons for decision
When a profit arises from the carrying on or carrying out of a profit making undertaking then it may be considered assessable income under section 6-5 of the ITAA 1997.
However if a taxpayer does not purchase land with the intent to make a profit, on the sale of that land, then the likelihood that any profit made on the eventual sale of land would be considered as ordinary income is greatly diminished (Casimaty v. FC of T (1997) 97 ATC 5135, 37 ATR 358).
It is accepted that your original intention when you purchased the land was not to make a profit on the sale of that land. As such the subdivision undertaken by you will not amount to the carrying on of a business or a profit making undertaking.
The proceeds from the sale of the subdivided land will be the mere realisation of a capital asset.
Accordingly, as these proceeds are considered to be of a capital nature they will not be assessable as ordinary income; however they will be assessable as a capital gain under section 104-10 of the ITAA 1997.
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