Edited version of private advice

Authorisation Number: 1052105657554

Date of advice: 6 April 2023

Ruling

Subject: Property

Question 1

Will the profit realised from the sale of Lot X be assessable income pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will the profit realised from the sale of Lot X be assessable income pursuant to section 25A of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No

Question 3

Will the profit realised from the sale of Lot X be assessable income pursuant to section 15-15 of the ITAA 1997?

Answer

No

Question 4

Will Lot X be subject to the trading stock provisions contained in Division 70 of the ITAA 1997?

Answer

No

Question 5

Will the gain made from the sale of Lot X be a capital gain pursuant to Part 3-1 of the ITAA 1997?

Answer

Yes

This private ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

Farm A

You married your now spouse, A, in XXXX.

Prior to your marriage, in XXXX, you purchased a property located at XXX (Farm A). You operated the farm in your capacity as a sole trader.

The property was purchased with a view to operate a horse business.

The purchase price of Farm A was $XX and an additional $XX (approximately) was spent on structures including stables, fencing, windbreaks and electric fencing to make it a suitable horse facility.

You cared for horses.

Farm A was approximately XX.

Significant events

A number of significant events occurred whilst the horse business was being carried on at Farm A, which had operational and financial impacts on the business and impacts personally for you and your spouse.

These events led to the decision to eventually sell Farm A and purchase Farm B. This is the property which is the subject of this ruling and is discussed further below). Each event is detailed below.

Equine influenza outbreak

In late 20XX, Australia suffered an outbreak of equine influenza (EI). In response to the EI outbreak, Australian authorities enforced movement and quarantine restrictions.

Farm A sat just outside a risk zone. Horses from inside the zone could not leave the zone unless they had completed a period of quarantine at an approved facility inside the zone. Customers outside the zone were unwilling to place their horses at facilities in the zone out of fear of an outbreak or unexpected changes to the risk zonings, as quarantine was cost prohibitive.

As a result, the business operations of Farm A were severely impacted as horse owners were unwilling or unable to relocate the horses. The horse business suffered financially. The horse business was not eligible for all the government grants offered to support businesses during this time.

Global Financial Crisis

After the EI outbreak, the horse industry suffered significantly as a consequence of the global financial crisis (GFC). A substantial part of the horse industry is funded by discretionary spending. When the GFC hit, investors either pulled out of the industry or slowed the provision of additional capital into horses.

Family borrowings

The EI outbreak and the GFC had a significant impact on the cashflows of the business. Consequently, you and your spouse began borrowing funds from a third party, to meet your mortgage repayments on Farm A.

Prior to the purchase of Farm B (discussed further below), you had borrowings from the third party of $XX.

Family illness

In XXXX, a family member became ill. To provide care and support, you travelled from Farm A to XXX per week.

In XXXX, the family member passed away. Another family member got sick. You continued to frequently travel to XXXX.

During this time, you and your spouse were discussing plans to move closer to XXXX to be closer to your family.

Farm B Opportunity

In late XXXX, you and your spouse became aware that a farm was for sale.

Farm B was significantly closer to your family member at X.

Farm B was approximately X, split over three separate titles. The three titles of Farm B were:

• X ha - which was used as grazing land / paddocks for the horses
• X ha - which contains a horse quarantine area and grazing land
• X ha- which housed existing structures including a commercial buildings and cattle shelters

Based on the maps attached to the XX Planning Proposal provided to us.

The Property also had an easement for the drainage of water which was XXX metres wide.

The Property was already setup with extensive cattle infrastructure which could be converted to manage horses. The facilities had not been used since the X's and were run down and in need of repair, conversion and upgrades.

Whilst the previous owners of Farm B had made attempts to have Farm B re-zoned by the Council, no information was provided to you, your spouse, or your representatives, during prospecting. At the time of purchase, you knew:

• That the land had been owned by entities related to Entity A when it went into voluntary administration in XXXX.
• In XXXX, the Entity A administrators sold the business to another property developer who continued trading under the business name.
• At some point after this a secured creditor exercised their security interest and a receiver sought to sell various parcels of land over which it had security via a tender process.
• As the receiver was unable to sell Farm B through the tender process, the receiver provided instructions to a local real estate agent to offer the land for sale.
• You became aware of the land as the instructed agent discussed the opportunity with an agent that you and your spouse had been using to look for rural property in the area
• That agent notified you and your spouse of the Property, and you undertook an inspection.

Funding and Bank business plan

It was after inspecting Farm B that you and your spouse first listed Farm A for sale. You and your spouse decided to buy Farm B even though Farm A had not yet sold.

Since you did not yet have a buyer for farm A, a third party agreed to put up the X% deposit required to secure Farm B in exchange for X% ownership in the property (i.e. as security until the loan was repaid). There is no formal documentation for this arrangement.

To fund the balance of the purchase price for Farm B, you and your spouse approached Bank A who agreed to lend the required funds. However, a week before settlement of Farm B, Bank A pulled their funding offer.

You and your spouse quickly approached another Bank (Bank B) and put forth a business plan (the bank business plan) showing how you would be able to put the Property to immediate use to generate income from a transfer and expansion of your equine business. You have provided a copy of this business plan to us.

The Bank business plan outlined the following motivations:

To move to Farm B...would give us many more opportunities to increase capital gain and increase cashflows from a variety of sources including:

•         Reinstate your trade income

•         Looking after horses (our current business)

•         X horse services

•         X rent

•         X accommodation

The Bank business plan included proposed cashflows in stages, including immediate cashflows of spelling and trade income followed by three stages of additional cashflows including horse services, renting the XX spaces and XX accommodation.

The Bank business plan suggested possible debt reduction strategies including the opportunity to sell off the additional two titles separately as follows:

• $XX (X-acre lot)
• $XX (X-acre lot)

Whilst debt reduction strategies were included, the focus of the Bank business plan was to further business cashflows.

The Bank business plan summarised three potential options should you and your spouse move ahead with the purchase of Farm B. Option one was to sell Farm A in the short term and move to Farm B debt free. However, the Bank business plan also anticipated a third option where farm A could not be sold within 12 months of purchasing Farm B. This option included having the option of $X in private borrowings to hold Farm B for a further X months to help achieve a sale price for either property and allowing time to implement property improvements or possible zoning changes and debt reduction using the multiple titles of Farm B.

Purchase contract

You made an offer of $X to purchase Farm B, which was accepted. Contracts were exchanged on XXXX.

Bank B agreed to fund the Farm B acquisition. The purchase of Farm B settled in XXXX.

Based on the purchase contracts, Farm B was purchased by you, your spouse and the third party as tenants in common as follows:

• X% by your spouse
• X% by you
• X% held by third party (as security until the loan for the deposit on Farm B was repaid)

Sale of Farm A

It was after inspecting Farm B that you and your spouse first listed Farm A for sale, in XXXX, before signing the Farm B purchase contracts in XXXX.

Farm A and the horse business were advertised prior to and at the Sales in early XXXX. Real estate agents appraised the expected sale price of Farm A at approximately $X at the time.

You were expecting to pay around $X for Farm B and receive around $X from the sale of Farm A (despite it being advertised at $X). This would be enough to clear a significant portion of your debts, including your debt with the third party.

Project A

Prior to listing Farm A for sale, in XXXX, you and your spouse received a document in the mail advising that Farm A would be impacted by the planned Project A. Based on the Project A website:

• The Project A was an initiative designed to provide infrastructure to X, in the X.
• The project involved construction of the Project.

Initially, it was proposed that the Project be run through the rear corner of Farm A with a X-metre easement applied to accommodate the project. In this form, the easement would not have any impact on the business operations of Farm A.

However, on XXXX, during your sales campaign for Farm A, you and your spouse received information that Project A, originally planned for the rear corner of Farm A, was instead planned to cut through the front of the property. The varied path would impact most of the street frontage of the farm.

The front part of Farm A had purpose made fencing designed to quarantine stock on arrival at the facility. Construction affecting this fence line would remove the ability to quarantine horses and there was no other part of the farm which had the necessary double fencing. This would significantly impact on your ability to bring horses onto the property, and hence, substantially impact your ability to perform ordinary business activities.

Additionally, there was a degree of uncertainty around the length of time and the level of impact that construction would create. You and your spouse did not know when you would be able to 'book in' these services for your customers.

A representative of the project met with you at Farm A on XXXX to conduct a site inspection. You were subsequently provided with documentation outlining agreements for construction (e.g. fencing would be replaced or restored to the same condition and with the same materials as was previously there prior to construction).

Farm A was being offered for sale at that time as a going concern, but the uncertain nature of Project A and the location of the easement and the real potential for it to reduce the size of the paddocks, had significantly impacted on the level of interest in the property.

At this stage, you and your spouse were committed to your decision to move closer to family and you recognised that Farm B was a unique property which presented opportunities to expand your horse business operations. Furthermore, you were still optimistic about the sale of Farm A as you were in negotiations with two buyers (both of whom made offers only to have their finance approvals subsequently withdrawn by their lenders due to the GFC). Accordingly, you went ahead with the purchase of Farm B in XXXX.

Project A construction work commenced in XXXX.

Sale contract

In XXXX, a sale of Farm A was negotiated. However, this sale fell through, and the property was again listed for sale with an auction date of XXXX.

Farm A eventually sold in XXXX for $X ($X less than originally anticipated). The mortgage owing at the time of sale was $X, not including the borrowings taken to secure Farm B.

You and your spouse continued operations at Farm A through until the time the property sale settled in XXXX.

Farm B operations

You and your spouse entered into a general law partnership in respect of the activities undertaken at the Farm B property.

You and your spouse were unable to operate activities on both properties simultaneously whilst Farm A remained for sale. Accordingly, prior to using Farm B actively, you accepted an offer from a third party (a cattle farmer) to graze cattle on the property. The third party did not pay a rental fee.

Initially you offered horse care services as this is what you had known from Farm A. You and your spouse also adapted your business model towards horse caring which is the main business activity undertaken today at Farm B.

Some of the paddocks at Farm B were not horse suitable and you and your spouse did not initially have funds for upgrades as Farm A had not been sold. Accordingly, you began farming beef cattle to supplement your income. You had experience being on a cattle farm, and you could apply the land for an income generating purpose either indefinitely or until a decision was made to convert those paddocks for horse use.

Over the years you and your spouse have been able to repair fencing and upgrade pastures. Now all paddocks are used for both horses and cattle.

Overall, since the purchase of Farm B in XXXX, the activities that have been undertaken at the Property include:

• Horse x
• Horse x
• Horse x
• Horse x and x
• Cattle grazing and sales

The Xha encompassing all three lots of Farm B have all been used across all businesses (other than the X which is solely used for horse activities and your residence/shed which you use personally).

Development Application for horse structures

You and your spouse engaged town planners to prepare and lodge a Development Application (DA) to build additional horse structures at Farm B. The additional infrastructure would allow you to offer additional horse services including:

• xx
• xx
• xx
• xx

The town planners arranged a meeting with the Council prior to lodging the DA and provided a proposal submission.

The DA was submitted to Council on XXXX.

It was approved by Council on XXXX.

Previous owner re-zoning enquiries

It wasn't until XXXX, approximately one year after you and your spouse had purchased Farm B, that you became aware that the previous owners had made unsuccessful re-zoning enquiries with Council.

On this date, you and your spouse received an email from the town planners which contained a copy of the submission made to Council by X Private Co Pty Ltd on behalf of X Private Co Pty Ltd (the consultants on behalf of the previous owners of the property). A copy of this email has been provided to us.

Review of Local Environmental Plans

In late XXXX, you and your spouse found out that Council were reviewing their Local Environmental Plans (LEPs) and engaged the town planners to advise you on the LEP matter. You did not feel like you had the adequate experience or qualifications to comment on the LEP.

The town planners recommended that they prepare a submission for Council on your behalf to protect your position and consider re-zoning of the local area as general residential.

You and your spouse were not personally involved in discussions with Council in respect of the review. You appointed the town planners as your agents and all dealings with Council went through the town planners.

As outlined in the submission, the land was zoned rural and the purpose of this submission was to request that Council revise the proposed zones that had been applied to Farm B to general residential consistent with adjoining lands, as a natural residential extension of that land.

On XXXX (after you failed to sell Farm B in the contracted advertisement period - see below), you and your spouse were informed by the town planners that their submission had been reviewed by Council and denied, but it would be considered again in future as part of the Council's Growth Strategy process.

Listing Farm B for sale

Whilst the town planners were attending to the submission, you and your spouse were incurring more debt given the inability to sell Farm A (which eventually sold) and the prevailing trading conditions for your business.

To get yourself out of financial distress, you and your spouse listed Farm B for sale in XXXX.

Your instructions to the real estate agent at the time was that you would accept $XX for Farm B.

Throughout XXXX, your real estate agent engaged in preliminary discussions with various potential buyers. However, you failed to sell Farm B within the contracted advertisement period.

Part sale of Lot X to a third party

On XXXX, you and your spouse received an unsolicited offer from a third party to purchase part of the land at Farm B which held the X facilities (Lot X). They intended to repurpose the buildings.

This initial offer was for $X for a portion of Lot X (which included approximately X acres of land and the buildings which previously operated as X and X facilities). The offer was subject to DA approval to subdivide the lot and approve the carrying on of X activities.

You initially refused this offer. However, after further negotiations, you and your spouse accepted an updated offer of $X in XXXX.

The disposal allowed you and your spouse to pay down some of your debt while Farm A was still unsold and Farm B had failed to sell. The bank was not advancing any further funds and you did not want to borrow any more from the third party.

Upon settlement you used the money to repay debt including the third party (loan of $X). The third party was then removed from the title of Farm B. Once the third party was removed from the title, Farm B was held X% by your spouse and X% by you.

After paying down debts, you and your spouse had approximately $X remaining.

The sale of the land to the third party reduced your anticipated business activities and in turn your expected profits.

Development Application for residence and accommodation

In XXXX, you lodged a DA for the subdivision of land. This application sought to split the third party land from your land and also seek consent for building a new home (that had originally been intended for the sold portion of the land).

Under Council rules at the time, to receive consent for a building on rural land that was X hectares, you were required to apply for X as well as the residence.

The DA was approved on XXXX.

Zoning requirements at the time required properties the size of Farm B to have X to build a X. You could not afford this, so you built a X which cost $X to build. The remaining funds were invested in the maintenance of the structures of Farm B.

The road upgrades

Shortly after the sale to the third party in XXXX you received notification from the Roads and Maritime Service (RMS) that they were planning on upgrading the road. As part of the upgrade, RMS sought to acquire a small portion of your land. You were provided with a draft plan of the upgrades but were unhappy with part of the plan.

On XXXX, you made a submission to the Minister for RMS in response to the proposed road access points. This submission sought to protect your land from compulsory acquisition and ensure the roads were wide enough and quiet enough that large, specialised trucks for cattle and horses could easily access and navigate their way to and from Farm B.

On XXXX, you received a map from RMS showing the finalised road upgrades and identifying which parts of Farm B they wanted to acquire for the construction of the upgrades.

On XXXX, you lodged a subdivision application to adjust the boundary of the lots so that the boundary land could be sold to RMS. This was approved on XXXX.

On XXXX, you and your spouse received a formal offer from RMS to purchase part of the Property for $X.

You also lodged an application to adjust the X and X DA to take into consideration the boundary adjustment.

Development Application for camping ground

To increase revenue opportunities and help reduce debt, on XXXX you lodged a DA to repurpose land as a XXXX. The application was approved on XXXX, conditional upon the RMS works being completed.

Enquiries for the re-zoning of Farm B

Another potential avenue to generate additional proceeds was to sell part of Farm B and reduce the size of the business operations.

You and your spouse recognised that any potential proceeds from a land sale would be higher if the land were zoned for residential rather than rural. A significant portion of the land in X is flood affected meaning that there is limited land availability. Farm B sits in a zone which is not flood affected and therefore it was conceivable that the Council would consider a re-zoning application.

Under the review in XXXX, Farm B was earmarked as an area for urban expansion because Lot X and Lot X were on higher ground, unaffected by floods and adjacent to residential land.

Around XXXX, you instructed the town planners to investigate whether a re-zoning was possible (i.e. more than X years after you purchased Farm B in XXXX, and more than X years after your earlier submission was refused on XXXX).

The town planners received an invitation to meet with Council staff to discuss the area, which they extended to you and your spouse, recommending your attendance.

On XXXX, you and your spouse and the town planners met with Council asking for the timeframe to be brought forward.

On XXXX, you and your spouse and the town planners attended a follow up meeting with council staff to continue those conversations to have the land re-zoned. Council staff indicated there was no scope to investigate at this time due to staff resources and other projects.

On XXXX, employees of the town planner attended a forum held at the Council. In that forum, attendees were encouraged to make submissions to Council for inclusions in respect of town planning.

On XXXX a submission was made to Council requesting they reconsider the timeframe outlined in the plan. No response was received to this submission.

Sale of Lot X

Around XXXX, you received an unsolicited offer to sell Lot XXXX. After negotiations, you and your spouse accepted an offer.

The purchaser, an unrelated party, wanted to apply to Council for the re-zoning of Lot X and they proposed that Lot X be included in the re-zoning application and that any fees for these applications would be split between you and the purchaser 50/50.

The contract for sale of Lot X was for $X. No further funds were, or will be, received for this sale.

The sale of Lot X was more than X years after you purchased Farm B in XXXX.

Planning Proposal submission

On XXXX, the town planners submitted a Planning Proposal in respect of Lots X, X and part of Lot X asking for the land to be re-zoned to residential, consistent with the adjoining Estate. They also asked for modifications to subdivision allotment size and building heights, complementing the proposal for residential zoning.

The owner of Lot X was the point of contact for the Council and any further information or applications which were required were prepared and lodged by them.

In XXXX the Council finalised their assessment of the site-specific Planning Proposal submitted in XXXX, providing significant modifications. The modified proposal was submitted to XXXX for review.

In XXXX, Council released a public exhibition of the X Growth Management Strategy (GMS) seeking community input on growth opportunities including the strategy of re-zoning Farm B. You and your wife instructed the town planners to include Lot X in the GMS.

On XXXX the town planners made a submission to Council commenting on the GMS, encouraging the land belonging to you to be re-zoned as general residential.

Development Application for shelters

To build upon and expand infrastructure for the horse business, on XXXX, you and your spouse lodged a DA for the construction of X shelters with associated yards and an additional farm building.

The application was approved on XXXX. To date these have not been constructed.

Business turnovers

You have provided us with the following table depicting the horse and cattle business turnovers from XXXX to XXXX. This shows the turnovers between XXXX and XXXX for Farm A operations as well as the turnover from Farm B operations from XXXX to XXXXX.

The business operations for the years ending XXXX and XXXX were affected by the droughts of XXXX and COVID-19.

You and your spouse provide most of the labour required by the business. You employ a small number of casual employees on an "as required" basis. The casual employees are employed as farmhands and are tasked with general farming duties such as property maintenance, mowing, fence repairs and tree planting. These activities are undertaken on the entirety of the property which services both horse and cattle business activities. Occasionally they are tasked with basic horse care, but the majority of animal care is provided by you and your wife personally.

Sale of Lot X

The Planning Proposal that was submitted to the Council for review was successful and as a result the plan was adjusted resulting in lots X and X being re-zoned to low density residential.

As part of this proposal, you and your spouse entered into a Deed with Council called the "xX" (Planning Proposal Deed) on XXXX. The Deed was between Council and the owners of Lot XXXX and you and your spouse.

The Deed documents an offer by you, your spouse and the owners of Lot X, to carry out landscaping works and maintain them for a specified period of time, to construct a stock exclusion fence and maintain it in perpetuity, and to pay the Council monetary contributions for the Council's ongoing maintenance of the landscaping works in connection with the Planning Proposal.

The Planning Proposal was registered on XXXX.

Following the Planning Proposal registration, you and your spouse received unsolicited offers for the purchase of Lot X.

On XXXX, you and your spouse signed a contract for the sale of Lot X for $X. Settlement occurred on XXXX. The purchaser is an unrelated party.

The sale of Lot X was more than X years after you purchased Farm B in XXXX. It is also more than X years after your earlier and first rezoning submission was refused on XXXX.

No earthworks, land clearing, road building, kerbing or connection of utilities, water or sewerage occurred in respect of the Farm B prior to settlement. These costs and works will be attended by its future owner. The obligations under the Planning Proposal Deed have been transferred to the new owners to be fulfilled by them.

You are now seeking confirmation of the income tax consequences for the sale of Lot X.

You and your spouse are not property developers and have not been involved in property development on previous occasions. You and your spouse have no history of property subdivision activities except for the activities in relation to the subdivision for the part sale of lot X. You and your spouse have always owned property assets for the purpose of main residence and/or carrying on a business on the land (and not a property development business in the manner of a property developer).

You and your spouse sold lot X, and part of lot X before the rezoning to residential. You did no further works to those lots to prepare them for further subdivision and development by property developers.

Re-zoning costs

You and your spouse expended approximately $X of personal funds with the town planners in pursuit of re-zoning Farm B (approximately X% of sale proceeds). This is total spend by you and your spouse since the purchase of Farm B in XXXX to the date of this ruling (i.e. over the course of nearly X years and includes the work performed on the X submission to council).

You and your spouse did not take out any loans to fund this expenditure.

Apart from the work disclosed above, there has been no other work conducted by the town planners nor any other advisor or consultant acting on instructions from you or your spouse in pursuit of re-zoning the lot for residential purposes.

The agreement with the town planners was on a X basis.

Future business plans

You and your spouse intend to continue the horse business operations on your remaining part of Lot X using the current infrastructure, and plan to add new infrastructure as approved under DAs. You intend to continue to use the residence/shed as your main residence.

You will no longer have enough space for cattle operations since the external paddocks such as the ones on Lot X were sold. With the proceeds from the land sale, you and your spouse are hoping to purchase another larger property, separate to Farm B, which will be used solely for cattle breeding and grazing.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 25A

Income Tax Assessment Act 1936 subsection 25A(1)

Income Tax Assessment Act 1936 subsection 25A(1A)

Income Tax Assessment Act 1936 subsection 25A(1B)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-15

Income Tax Assessment Act 1997 subsection 15-15(1)

Income Tax Assessment Act 1997 subsection 15-15(2)

Income Tax Assessment Act 1997 Division 70

Income Tax Assessment Act 1997 subsection 70-10(1)

Income Tax Assessment Act 1997 subsection 70-30(1)

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 995-1(1)

Does Part IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Question 1

Summary

The profit realised from the sale of Lot X by you will not be assessable income pursuant to section 6-5.

Detailed reasoning

Under section 6-5 your assessable income includes income according to ordinary concepts (known as ordinary income) you derived directly or indirectly from all sources, during the income year.

If the proceeds you receive from the sale of Lot X are ordinary income, the proceeds will be assessable under section 6-5.

Although neither of the Income Tax Assessment Acts provide specific guidance on what is meant by 'income according to ordinary concepts', a substantial body of case law has evolved to identify various factors that indicate whether an amount is income according to ordinary concepts.

There are two ways profits from the sale of land can be treated for taxation purposes as ordinary income under section 6-5:

1. As ordinary income under section 6-5 ("on revenue account") as a result of carrying on a business.
2. As ordinary income under section 6-5 ("on revenue account") as a result of an isolated business or commercial transaction.

Each of these are discussed below.

1.    Ordinary income - carrying on a business

In FC of T v. Myer Emporium Ltd 1987 163 CLR 199 (Myer), the High Court spoke of profits or gains made in the ordinary course of carrying on a business being income. The Court went on to say that, because a business is carried on with a view to profit, such profits or gains are invested with a profit-making purpose and are thereby stamped with the character of income.

The Commissioner's view on the application of the principles outlined in Full High Court of Australia decision in Myer is set out in Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3). As outlined in TR 92/3, the Commissioner considers that there are two types of profits or gains which come within that description, namely:

(i)    a profit or gain arising from a transaction which is itself a part of the ordinary business of a taxpayer (judged by reference to the transactions in which the taxpayer usually engages) - provided that the gross receipts from the transaction lack the character of income (Commercial and General Acceptance Ltd v. FC of T (1977) 137 CLR 373 at 381; 77 ATC 4375 at 4380; 7 ATR 716 at 722); and

(ii)   a profit or gain arising from a transaction which is an ordinary incident of the business activity of the taxpayer, although not a transaction entered into directly in its main business activity e.g. profits of insurance companies and banks on the sale of investments are generally income (Chamber of Manufactures Insurance Ltd v. FC of T (1984) 2 FCR 455; 84 ATC 4315; 15 ATR 599 and C of T v. Commercial Banking Co. of Sydney (1927) 27 SR(NSW) 231).

Carrying on a business

Subsection 995-1(1) states the term 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the particular facts.

Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11), provides the Commissioner's view of the factors used to determine if you are in business for tax purposes. In determining whether a taxpayer is carrying on a business, no one indicator will be decisive. The indicators must be considered in combination and as a whole.

You and your spouse entered into a X partnership in respect of the business activities undertaken at the Farm B. Farm B encompassed three Lots: Lots X, X and X, until the sale of Lot X in XXXX and settlement of Lot X in XXXX. The Xha encompassing all three lots of Farm B have all been used across all businesses (other than the arena which is solely used for horse activities, and homes/sheds used as your residence).

You and your spouse operate a horse business and a cattle business at Farm B. Overall, since the purchase of Farm B in XXXX, the business activities that have been undertaken at the Property include:

• Horse X
• Horse X
• Horse X
• Horse X and X
• Cattle grazing and sales

The horse business has been a furthering of the previous horse business that was carried on at Farm A, prior to its sale in XXXX, where you and your spouse were operating a horse business.

You and your spouse are not in the business of property development. Having not taken any active steps in developing the lot for residential development, except for the initial rezoning of the land.

The sale of Lot X is not a transaction that is part of your ordinary business of horse X or your ordinary business of cattle grazing and sales. The sale of Lot X is also not a transaction which is an ordinary incident of your horse and cattle business activities.

Based on the information provided, we do not consider that any proceeds you would receive from the sale of Lot X would be derived as ordinary income under section 6-5 of the ITAA 1997 as a result of carrying on a business.

2.    Ordinary income - isolated transaction

Profits arising from an isolated business or commercial transaction 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 (Myer).

TR 92/3 provides guidance on the principles outlined in Full High Court of Australia decision in Myer in determining whether profits from isolated transactions are assessable under section 6-5 as ordinary income.

The term isolated transaction refers to:

• those transactions outside the ordinary course of business of a taxpayer carrying on a business; and
• those transactions entered into by non-business taxpayers.

Whether a profit from an isolated transaction is income according to the ordinary concepts and usages of mankind depends very much on the circumstances of the case.

The courts have often said that a profit on the mere realisation of an investment is not income, even if the taxpayer goes about the realisation in an enterprising way. The expression 'mere realisation' is used to contradistinguish a business operation or a commercial transaction carrying out a profit-making scheme (Myer). However, a profit from an isolated transaction is generally income (not a mere realisation of an investment) when both of the following elements are present:

(i)    the intention or purpose of the taxpayer in entering into the profit-making transaction or operation was to make a profit or gain, and

(ii)   the transaction or operation was entered into, and the profit was made, in carrying out a business operation or commercial transaction.

These elements are discussed below.

    (i)        Intention or purpose at time of purchase

TR 92/3 explains that it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case.

It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. It is sufficient if profit-making is a significant purpose.

Paragraph 9 in TR 92/3 states:

The taxpayer must have the requisite purpose at the time of entering into the relevant transaction or operation. If a transaction or operation involves the sale of property, it is usually, but not always, necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property.

The decision in Casimaty v. FC of T 97 ATC 5135; (1997) 37 ATR 358 (Casimaty) demonstrates that in circumstances where there is an absence of profit-making intention when land is acquired, and nothing to suggest a change in that purpose, the likelihood of any profit made on the eventual sale of land being income according to ordinary concepts is greatly diminished.

Casimaty considered the sale of farming land. In 1955, the taxpayer acquired a farming property comprising 988 acres ("Acton View'') from his father. The next year, the taxpayer purchased a further 40 acres adjoining Acton View on which he erected a homestead. For the next 20 years, the taxpayer conducted a business of primary production on the property but because of growing debt and ill health, the taxpayer had to subdivide and sell off a large part of the property. In all there were eight separate subdivisions carried out between 1975 and 1993. Most of the subdivisions required the taxpayer to construct one or more roads, provide water and sewerage facilities to the relevant blocks and to fence all boundaries.

The sales from the relevant subdivisions were held to not be income according to ordinary concepts, but rather constituted the mere realisation of a capital asset of the taxpayer. That conclusion was primarily influenced by the fact that the taxpayer acquired and continued to hold Action View for use as a residence and the conduct of a primary producer. Apart from the activities necessarily undertaken to obtain approval from time to time for subdivision of parts of the property, there was nothing to suggest a change in the purpose or object with which Acton View was held.

The proceeds were held to be from 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 was not assessable income under section 6-5.

In this case, Lot X was acquired along with Lots X and X (Farm B) in X. It was your intention to:

• Move closer to your family.
• To continue to carry on a horse business in partnership with your spouse (the business you had carried on previously at Farm A).
• To reduce debt as you had expected Farm A to sell for $X and to purchase Farm B for $X.

Your objective intention at the time of purchase is evidenced by:

• Farm B's location, which was significantly closer to your family.
• The Bank B business plan you provided in order to obtain funding from Bank B for the purchase of Farm B. The Bank B business plan clearly outlines your intention to operate various business activities at Farm B to generate cashflows, primarily from your horse business that you would continue to carry on after selling Farm A, but also various other business activities.
• The Farm B business plan outlines your expectations of reducing debt by downsizing from the higher value property at Farm A to Farm B.
• Whilst the Bank B business plan suggested possible debt reduction strategies, the focus of the Bank B business plan was to further business cashflows. The business plan included a potential strategy of selling off the additional two titles of Farm B separately, if required, to reduce debt. The sales values for the additional two lots of Farm B were estimated at $X and $X. These estimates indicate that re-zoning these lots had not been in serious contemplation at the time of purchase.
• The Bank B business plan summarised three potential options should you and your wife move ahead with the purchase of Farm B. The last option, where Farm A could not be sold within X months of purchasing Farm B, was to hold Farm B for a further X months to help achieve a sale price for either property and allowing time to implement property improvements or possible zoning changes and debt reduction using the multiple titles of Farm B. However, it is clear that this was the final option where options 1 and 2 had not gone to plan, and so was not a significant purpose. Your intention to carry on business at Farm B, was nonetheless, still clear.
• That when in doubt as to the ability to sell Farm A you listed the whole of Farm B (not parts) for sale in XXXX. This was before approaches to you to buy parts of the X lots the makeup Farm B. Your approach has been to sell lots or parts of lots without developing them further, and to obtain funds to further improve the lot that remains for the horse and other purposes.

Since the purchase of Farm B, you and your wispouse have actually carried on businesses (horse and/or cattle businesses) on all x lots of Farm B, including Lot X, until the settlement of Lot X in XXXX. This further demonstrates your original intentions for Farm B.

Similar to the Casimaty case, the intention in acquiring Farm B, including Lot XXXX, was not for the purpose of selling the lots at a profit and could not be said to be one of a profit-making purpose.

Change of intention

As outlined above, generally, a profit from an isolated transaction is income when both a profit-making intention existed at the time of purchasing the property and the profit was made in carrying out a business operation or commercial transaction.

If a transaction or operation involves the sale of property, it is usually necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property. However, as the High Court decisions in White v. FC of T (1968) 120 CLR 191; 15 ATD 173 and Whitfords Beach demonstrate, that is not always the case.

The Commissioner must also turn his mind to whether the original intention of the Company changed at a later time, and, if so, the point in time that the profit making intention can be discerned from an objective consideration of the facts.

Paragraph 42 of TR 92/3 indicates a taxpayer's intention may change to profit-making intention after the time of acquisition. It states:

42. For example, if a taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to venture or commit the asset either:

1. as the capital of a business; or
2. into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction,

Accordingly, we must consider whether the sale of Lot X would constitute a business operation or commercial transaction whereby the profit-making intention presented at a later point in time than when the operation or transaction commenced.

You have made efforts in relation to rezoning Lot X but these were rejected and at some points not responded to. The rezoning of the land has been as a result of council planning and required expansion.

You have previously listed Lot X for sale and no sale was secured. You have now been approached with unsolicited offers to sell Lot X.

However, on balance, based on the length of time it took to re-zone the land, the level of input from your advisors and their recommendations in seeking to re-zone the land to secure your property value, and the passive role that you and your spouse played, we consider that these activities are not in the character of a business operation or commercial transaction. Further, that no profit making intention has presented at a later point in time.

   (ii)        Business operation or commercial transaction

TR 92/3 explains that for a transaction to be characterised as a business operation or a commercial transaction, it is sufficient that the transaction is business or commercial in character (see Whitfords Beach at 150 CLR 379; 82 ATC 4044; 12 ATR 707). In very general terms, a transaction or operation has the character of a business operation or commercial transaction if the transaction or operation would constitute the carrying on of a business except that it does not occur as part of repetitious or recurring transactions or operations.

Some of the factors to consider when looking at whether an isolated transaction amounts to a business operation or commercial transaction are listed at paragraph 13 in TR 92/3. They are:

(a)  the nature of the entity undertaking the operation or transaction

(b)  the nature and scale of other activities undertaken by the taxpayer

(c)   the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained

(d)  the nature, scale and complexity of the operation or transaction

(e)  the manner in which the operation or transaction was entered into or carried out

(f)    the nature of any connection between the relevant taxpayer and any other party to the operation or transaction

(g)  if the transaction involves the acquisition and disposal of property, the nature of that property; and

(h)  the timing of the transaction and the various steps in the transaction.

The factors listed above are expanded below in relation to your circumstances. However, we note that this is not an exhaustive list and all of the facts and circumstances of the sale have been considered.

(a)  The nature of the entity

The first factor considers the nature of the entity undertaking the operation or transaction. Paragraph 49 of TR 92/3 expands this factor with an example:

If the taxpayer is a corporation with substantial assets rather than an individual, that may be an indication that the operation or transaction was commercial in nature. However, if the taxpayer acts in the capacity of trustee of a family trust, the inference that the transaction was commercial or business in nature may not be drawn so readily.

You and your spouse held Farm B, including Lot X, as tenants in common in your individual capacity, and carried out business operations on the property under a general law partnership.

This factor does not point towards your sale of Lot X as being a business operation or commercial transaction.

(b)  Nature and scale of other activities

The second factor is the nature and scale of other activities undertaken by the taxpayer.

You and your spouse are not property developers and have not been involved in property development on any previous occasions.

Your spouse purchased Farm A in XXXX where he carried on a horse business until the sale of the farm in XXXX. You and your spouse have carried on your horse business in partnership since the purchase of Farm B (and sale of Farm A). Despite the sale of Lot X which settled in XXXX, you continue to operate that business on Lot X which has been retained. This means you and/or your spouse have operated a horse business over a period of more than X years.

The scale of your horse and cattle businesses has varied over the years. Business turnovers have ranged from $X at Farm A in XXXX to $X at Farm B in XXXX. However, you and spouse have primarily run those businesses personally, with two casual staff employed only on an 'as required' basis.

The history of your business operations do not point towards any experience, trend or sophistication in property development. Your time and experience has been directed towards your horse and cattle businesses.

This factor does not point towards your sale of Lot X as being a business operation or commercial transaction.

(c)   Money involved & magnitude of profit

The third factor is the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained.

You and your spouse expended approximately $X of personal funds with the town planners in pursuit of re-zoning farm B (approximately X% of sale proceeds). This is total spend by you and your spouse since the purchase of Farm B in XXXX to the date of this ruling (i.e. over the course of nearly X years and includes the work performed on the X submission to council). These costs to secure and protect the value of your land, are not of an unusual magnitude for a sale of farming land, and are minor when compared to the size of the profit on the land sale itself.

You and your spouse purchased all three lots comprising Farm B in XXXX for a purchase price of $xxxx. In xxxx you and you wife settled the sale of Lot xxxx for a sale price of $X (X times greater than the purchase cost). Whilst there are other costs that may form part of the cost base of the property, an unusually large profit is expected. This profit is larger than what would be usual to expect from a purchase and subsequent sale of farming land.

This factor could point towards your sale of Lot X as being a business operation or commercial transaction, due to the unusually large profit expected (subject to the consideration of further factors).

(d)  Nature, scale and complexity

The fourth factor is the nature, scale and complexity of the operation or transaction.

Lot X has been sold in its current state (as one lot). The re-zoning of the lot from rural to residential is discussed in factor (e) below. However, other than the re-zoning, no earthworks, land clearing, road building, kerbing or connection of utilities, water or sewerage occurred in respect of the Farm B property prior to settlement. These costs and works will be attended by its future owner. The obligations under the Planning Proposal Deed have been transferred to the new owners to be fulfilled by them.

The sale of Lot X itself, is not a complex transaction. You received an unsolicited approach for the purchase of Lot X. Other than the re-zoning (discussed below), you and your spouse did not undertake any other activities to prepare Lot X for sale, including that you did not undertake any activities to prepare the lot for use as residential land. From the perspective of the work undertaken by you and your spouse, there is nothing to indicate any additional complexity involved in the sale of the Property, beyond what would normally be expected of disposing of a block of land (with the exception of the re-zoning work which is discussed below).

You and your spouse have not performed activities in connection with the sale that could be said to transform the sale from an ordinary sale of farming/residential land, to a business or commercial transaction (but for the re-zoning activities considered further below).

This factor does not point towards your sale of Lot X as being a business operation or commercial transaction.

(e)  Manner of operation or transaction

The fifth factor is the manner in which the operation or transaction was entered into or carried out. Paragraph 49 of TR 92/3 expands this factor noting that this factor would include whether professional agents and advisers were used and whether the operation or transaction took place in a public market.

Farm B was acquired in XXXX to move closer to A's family and continue your horse business operations. At this time, the land was zoned as rural and not zoned as residential. You and your spouse only became aware of the former owner's failed attempts to have the land re-zoned as residential XXXX year following purchase. You were informed of these attempts by the town planners.

The subsequent re-zoning of the land to residential was recommended by the town planners on the back of Council reviewing their Local Environmental Plans (LEPs) in XXXX. In XXXX the town planners informed you that the proposal to re-zone the land to residential was denied, but would be considered later as part of growth strategies. Re-zoning enquiries didn't resume until around XXXX, when you and your spouse instructed the town planners to investigate whether a re-zoning was possible.

You and your spouse retained the town planners as your agent to assist you in the approaches to have the zoning considered. You did attend two meetings. When you sold Lot X in XXXX, the town planners was the contact point on your behalf.

You did not carry out or organise anything on the land to pursue land development in your own right although once the land was rezoned this was possible.

Overall, the process of re-zoning the land was a gradual process that took X years to accomplish (from late XXXX when you first discovered the former owner's attempts to re-zone the land up until the Planning Proposal was finally registered in XXXX).

This factor, being the re-zoning of the land to residential, could point towards your sale of Lot X as being a business operation or commercial transaction.

However, on balance, based on the length of time it took to re-zone the land, the level of input from your advisors and their recommendations in seeking to re-zone the land to secure your property value, and the passive role that you and your spouse played, we consider it more likely that the subsequent re-zoning was undertaken to secure the best sale price and not in the character of a business operation or commercial transaction.

(f)    Connection to other parties

The sixth factor is the nature of any connection between the relevant taxpayer and any other party to the operation or transaction. TR 92/3 expands this factor explaining that the relationship between the parties may suggest that the operation or transaction was essentially a family dealing and not business or commercial in nature.

Lot X has been sold in an arm's length transaction to an unrelated party. That is, there is no relevant connection between you and the purchaser. Further, the previous sale of Lot X was also sold in an arm's length transaction to an unrelated party.

This factor does not point towards your sale of Lot X as being a business operation or commercial transaction.

(g)  The nature of the property

The seventh factor is, if the transaction involves the acquisition and disposal of property, the nature of that property. TR 92/3 explains that if the property has no use other than as the subject of trade, the conclusion that the property was acquired for the purpose of trade and, therefore, that the transaction was commercial in nature, would be readily drawn.

You intended, and did, carry on your horse business on all three lots of Farm B, including Lot X. That is, the Property was not acquired as part of a trade and was not to be disposed of as part of a trade.

This factor does not point towards your sale of Lot X as being a business operation or commercial transaction.

(h)  Timing and steps

The final factor is the timing of the transaction and the various steps in the transaction. TR 92/3 explains if the relevant transaction consists of the acquisition and disposal of property, the holding of the property for many years may indicate that the transaction was not business or commercial in nature.

You and your spouse have owned Lot X of Farm B since XXXX. Settlement was effected in XXXX and accordingly you have held and carried on business on Lot X over a period of approximately X years.

This factor does not point towards your sale of Lot X as being a business operation or commercial transaction.

Other considerations

We have also considered the context and history of your ownership of both Farm A and Farm B.

Many significant events, outside of your control, have impacted you during your ownership of both properties and affected your business operations. These events have contributed to your financial distress over the years and have put you in positions that were not anticipated or preferred.

Events that impacted you and your spouse include A's family illness, difficulties selling Farm A for a desired price, failed sales, EI outbreak, the GFC, impacts of Project A and the impacts of the road upgrades. A combination of these events meant that when you moved to Farm B, you couldn't afford to expand or capitalise on business opportunities, including building the structures that were subject to DA approvals.

Your financial distress over the years meant that you and your spouse sold, or tried to sell, parts of Farm B that had been intended to be used for business opportunities. For example:

• To get yourself out of financial distress, you and your spouse listed Farm B for sale in XXXX, instructing your real estate agent that you would be willing to receive $X (which was ultimately unsuccessful).
• You sold part of Lot X to the third party in XXXX (originally intended as your main residence).
• You sold Lot X in XXXX, to an unrelated party, which would indicate that you did not anticipate that you would successfully re-zone the lot in the short-term (or otherwise you may have retained this lot for your own profit).

On balance of the factors outlined above, and having regard to the facts and circumstances that led to the sale of Lot X, we do not consider that the sale of Lot X would constitute a business operation or commercial transaction whereby the profit making intention presented sometime after the original purchase of Farm B.

It is considered that by going through the re-zoning process you were able to secure the best price and did not amount to carrying out of a profit-making scheme. That is, any sales proceeds to be received from the sale of the Property will be considered a mere realisation of a capital asset.

Based on the information provided, we consider that any proceeds you would receive from the sale of Lot X would not be derived as ordinary income under section 6-5 as a result of an isolated business or commercial transaction.

Conclusion

Any profits derived from the sale of Lot X will not be ordinary income and will not be assessable income pursuant to section 6-5.

Question 2

Summary

The profit realised from the sale of Lot X will not be assessable income pursuant to section 25A of the Income Tax Assessment Act 1936 (ITAA 1936).

Detailed reasoning

Section 25A of the ITAA 1936 can bring into assessable income the profit arising from the sale of property acquired for the purpose of profit-making by sale or from the carrying on or carrying out of a profit-making undertaking or scheme.

Subsection 25A(1) of the ITAA 1936 provides:

The assessable income of a taxpayer shall include profit arising from the sale by the taxpayer of any property acquired by the taxpayer for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme.

However, subsection 25A(1A) provides that section 25A does not apply in respect of property acquired on or after 20 September 1985.

Further, subsection 25A(1B) provides that this section does not apply to a profit arising in the 1997-98 year of income or a later year of income, even if the undertaking or scheme was entered into, or began to be carried on or carried out, before the 1997-98 year of income. The note to the section provides that section 15-15 (profit-making undertaking or plan) deals with such profits.

As you and your spouse acquired Farm B after 20 September 1985, and the sale of the Property occurred after the 1997-98 income year, section 25A of the ITAA 1936 does not apply.

Question 3

Summary

The profit realised from the sale of Lot X will not be assessable income pursuant to section 15-15.

Detailed reasoning

Subsection 15-15(1) states:

Your assessable income includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan.

However, subsection 15-15(2) provides that such a profit will not be assessable under the section if it:

(a)  is assessable as ordinary income under section 6-5; or

(b)  arises in respect of the sale of property acquired on or after 20 September 1985.

You and your spouse acquired Farm B in XXXX, after 20 September 1985. Accordingly, as paragraph 15-15(2)(b) is satisfied, section 15-15 does not apply.

Question 4

Summary

Lot X is not subject to the trading stock provisions contained in Division 70.

Detailed reasoning

For Lot X of Farm B to be caught under the trading stock provisions, it is necessary for there to be an item of trading stock involved. Trading stock is defined in subsection 70-10(1) as including:

(a)  anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business...

Further, subsection 70-30(1) provides that:

If you start holding as trading stock an item you already own, but do not hold as trading stock, you are treated as if:

(a)  just before it became trading stock, you had sold the item to someone else (at arm's length) for whichever of these amounts you elect:

(i)    its cost (as worked out under subsection (3) or (4);

(ii)   its market value just before it became trading stock; and

(b)  you had immediately bought it back for the same amount.

Taxation Determination 92/124 Income tax: property development: in what circumstances is land treated as 'trading stock'? (TD 92/124) states that land is treated as trading stock for income tax purposes if it is held for the purposes of resale and a business activity which involves dealing in land has commenced. TD 92/124 states that the business activity is taken to have commenced when a taxpayer embarks on a definite and continuous cycle of operations designed to lead to the sale of the land.

Land can be trading stock before it has been turned into the condition in which it is intended to be ultimately sold - that is, land intended to be sold after subdivision is still trading stock before it is subdivided (R & D Holdings; St Hubert's Island).

For Lot X of Farm B to be considered trading stock, the land would need to be held for the purpose of sale or exchange in the ordinary course of business.

Farm B was acquired in XXXX, including Lot X, for the purpose of carrying on a horse business and providing a place of residence for you and your spouse (although the residence was not constructed on Lot X). The Property has been used for that purpose during the entire period of ownership.

There is no business to which the land can be held as trading stock as you and your spouse are not engaged in a business activity of property development (as concluded in Question 1 further above). The disposal of Lot X is the mere realisation of an investment asset, and the land has never been held for 'sale or exchange in the ordinary course of a business'.

Lot X is being held for the purposes of carrying on a horse and cattle business and not a business of trading land. Accordingly, the trading stock rules contained in Division 70 do not apply to the sale of Lot X.

Question 5

Summary

Your share of the gain made from the sale of Lot X will be a capital gain pursuant to Part 3-1.

Detailed reasoning

You may make a capital gain as a result of a CGT event happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1 (section 104-10), occurs when you dispose of your ownership interest in a CGT asset to another entity.

You make a capital gain or capital loss if a CGT event happens to a CGT asset. Property is considered to be a CGT asset.

CGT event A1 happens if you dispose of your ownership interest in a CGT asset.

CGT event A1 will happen at the time a contract is entered into for the sale of Lot X (unless a more specific CGT event applies). A capital gain will be made if the capital proceeds from the disposal are more than the Property's cost base.

You have not asked for and the Commissioner has not considered the amount of the gain and any potential CGT discounts that may apply.

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