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Edited version of your written advice
Authorisation Number: 1012754559223
Ruling
Subject: Subdivision
Question 1
Are you carrying on a business?
Answer
No.
Question 2
Are the proceeds from the sale of the subdivided land assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as profits from an isolated transaction?
Answer
No.
Question 3
Are the proceeds from the sale of the subdivided land considered a mere realisation of a capital asset for income tax purposes?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
1 July 2013
Relevant facts and circumstances
In mid-20XX you purchased a property with the intention of retiring.
The intention to retire was frustrated due to issues with your family in another state.
In 20YY you resolved to sell the property having accepted that a return to the other state was required to best support your family.
In 20ZZ you purchased a property that contained an existing dwelling.
This property is still the main residence of both you and your spouse.
You commenced making renovations to the property soon after moving as it was your intention that it would be the long term family home.
In 20ZZ you learnt that a property you had previously owned and lived in was going back on the market. As you and the family had an affinity with the property, its potential re-acquisition and the related prospect of having to dispose of the other property became a possibility.
As you and your spouse were not familiar with subdivision and had not previously undertaken such an activity, a consultant was engaged to facilitate the application to council.
You were aware that the former owners of the property had unsuccessfully sought subdivision approval and thus the prospect of success was considered low.
On this basis, renovations continued to the property with the view it would be your long term residence.
In 20ZZ an application for a planning permit to subdivide the property into X lots was lodged with the local Council.
On this basis a real estate agent was engaged to sell land titles that would be created in the event the subdivision was approved.
In 20VV, permission to subdivide the property was granted by the council subject to the condition that certain works be undertaken including external carriage way alterations, internal roads, fire services, water supply, power supply, gas supply, telecommunications, sewer, fencing and drainage.
At this stage the vacant lots have been sold.
The proceeds received will be used to fund the purchase of the previously owned property and to pay for the subdivision costs.
The remaining lot containing the main residence will eventually be
In regards to the subdivision:
• neither you or your spouse have been involved in the subdivision and sale of land in the past
• no additional land was acquired to add to the property to increase its marketability
• your spouse may assist in organising the various engineers and contractors required for the subdivision
• the property is not used in connection with any GST registered enterprise carried on by you or your spouse
• neither you or your spouse are registered for GST for any purpose
• it will be necessary to borrow funds to undertake the required subdivision works
• no buildings will be erected on the vacant lots prior to their sale
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
We need to determine whether the proceeds from the sale of the lots:
• are assessable ordinary income under section 6-5 of the ITAA 1997 as you were carrying on a business of property development
• are assessable ordinary income under section 6-5 of the ITAA 1997 as you conducted an isolated commercial transaction with a view to a profit, or
• are a realisation of a capital asset and assessable under the CGT provisions of the ITAA 1997.
Carrying on a business of property development
Based on the information provided, we do not considered that any proceeds received from the sale of the subdivided land would not be derived in the course of carrying on a business.
Profits from an isolated transaction
Profits arising from an isolated business or commercial transactions will be ordinary income if the taxpayer's purpose or intention in entering into the transaction is to make a profit, even though the transaction may not be part of the ordinary activities of the taxpayer's business (FC of T v. Myer Emporium Ltd 1987 163 CLR 199; 87 ATC 4363; 18 ATR 693) (Myer Emporium).
Taxation Ruling TR 92/3 considers the principles outlined in the Myer Emporium case and provides guidance in determining whether profits from isolated transactions are assessable under section 6-5 of the ITAA 1997 as ordinary income.
Having regards to your circumstances and the factors outlined in TR 92/3, we do not consider that the proceeds from the sale of the land will be assessable under section 6-5 of the ITAA 1997. We consider that the disposal of the property will be a mere realisation of a capital asset.
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