| Disclaimer This edited version has been archived due to the length of time since original publication.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. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051541732971
Date of advice: 11 July 2019
Ruling
Subject: Capital versus revenue
Question 1
Will the proceeds from the sales of the lots be considered a mere realisation of a capital asset?
Answer
Yes. On balance, it is considered that the proceeds from the sale of the lots will be subject to the CGT provisions in Parts 3-1 and 3-3 of the Income Assessment Act 1997 (ITAA 1997).The sale of the lots will be regarded as a mere realisation of a capital asset. Proceeds from the sale of the lots will not be assessable as ordinary income under section 6-5 of the ITAA 1997.
Question 2
Is the sale of the lots a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No. Having applied all the principles in Miscellaneous Taxation Ruling MT 2006/1 to the present circumstances, we conclude that the sale of the subdivided lots will not be a taxable supply pursuant to section 9-5 of the GST Act 1999.
This ruling applies for the following periods:
Year ended 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Relevant facts and circumstances
You and your spouse acquired a residential property a number of years ago.
When the property was acquired it was planned to the dwelling for investment purposes. You planned to eventually redevelop the property and use part of it for main residence purposes in the future.
The property was in a rundown condition which reduced the market value and made the property affordable, convenient and in a well-connected location.
You made significant improvements to the property with the intention of using the dwelling as a long-term rental and included pest control and repairing structural damage.
The property was used for rental purposes for a number of years.
While tenanted, you encountered significant issues with the property. The issues that were present impacted on the structural integrity of the dwelling and this was confirmed by a professional's inspection.
In view of the ongoing concerns raised by the tenants and the report form the professional it was apparent the long term viability of the property was under question.
You decided as result of the ongoing issues with the dwelling and duty of care towards the tenants to the early termination of the rental agreement.
Due to the growing issues with the property, you decided that to continue repairing the property would not be financially viable and decided to demolish the dwelling.
In line with the redevelopment policy from Council you built a double duplex. You would then move into one of the dwellings as your main residence.
You have provided details of the projected rental returns from the other dwelling which would be tenanted.
You borrowed some funds to help pay for the required works.
However, due to your situation, and after consideration of the needs of your family and the financial strain of the development, it was not feasible to own and manage the dwellings.
You have evidence of the costs, loans, and budget forecasts. You have also provided details of the sale price of the lots. Based on the figures, the net proceeds are minimal.
You and your spouse have never been involved in property development and will not be involved in any further development activities.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-5
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 112-25
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-5
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
