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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 1051538392132

Date of advice: 17 July 2019

Ruling

Subject: Land subdivision - controlled by developer

Question 1

Will the proceeds from the sale of the lots (the lots), be considered ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as a result of profit from an isolated commercial or business transaction?

Answer

No. You do not carry on a business of buying, selling or developing land. You have held the property for substantial period of time during which time you did not consider its development.

You had minimal involvement in the subdivision of the land and have not contributed any funds, expertise or been involved in the development plans or applications. Proceeds from the sale of the subdivided lots will not be included in your ordinary income.

Question 2

Will the proceeds from the lots be subject to the capital gains tax (CGT) provisions in Parts 3-1 and 3-3 of the ITAA 1997?

Answer

Yes. The proceeds represent a mere realisation of a capital asset under the capital gains tax (CGT) provisions in Parts 3-1 and 3-3 of the ITAA 1997.

Question 3

Will the sale of the subdivided lots be subject to GST?

Answer

No. Having applied all the principles in MT 2006/1 to the present circumstances, the activities and sale of the lots do not amount to an enterprise for GST purposes. The sale of the lots will be regarded as the mere realisation of a capital asset.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You acquired Property A after 20 September 1985 (the property). You provided the size of the property. You used the property for main residence purposes.

The property is zoned as residential and no rezoning has occurred during your ownership period.

You were approached by Developer A (the developer), in 20XX, to undertake the subdivision activities.

You provided a relevant documentation included agreements and plans.

The property is being subdivided into a small number of lots. Some lots were transferred to the developer as payment for the works in 20XX. You will transfer most of the lots to the developer and keep only few of them. One of the lots has your main residence dwelling on it. You will retain this lot.

All planning applications and approvals have been handled by the developer.

You provided the unimproved value of the property and value of the property after subdivision.

You have not borrowed funds for the activities.

The property has not been for sale prior to the subdivision.

You or any related entities have no previous involvement in any subdivision or property development activities.

You or any related entities do not have plans to be involved in any future subdivision or property development activities.

You are registered for GST for your work which is not related to subdivision or property development activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 112-25

Income Tax Assessment Act 1997 section 118-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-25

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

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