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Edited version of private advice

Authorisation Number: 1052387384363

Date of advice: 17 April 2025

Ruling

Subject: Capital v revenue

Question 1

Will your share of the proceeds from the sale of the subdivided portion of the property be assessable as ordinary income, on revenue account, under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as a result of carrying on a business of property development or as a result of an isolated profit-making transaction?

Answer 1

No.

Question 2

Will your share of the proceeds from the sale of the subdivided portion of the property be assessable as statutory income, on capital account as the mere realisation of an asset, under Parts 3-1 and 3-3 of the ITAA 1997?

Answer 2

Yes.

Based on the information provided, the proceeds from the sale of the subdivided portion of the property will not be ordinary income and not assessable under section 6-5 of the ITAA 1997as either:

•                the carrying on of a business in accordance with the factors listed in Taxation Ruling 97/11, or

•                a profit-making or commercial transaction in accordance with Taxation Ruling TR 92/3.

Therefore, any proceeds received on the disposal of the subdivided portion will represent a mere realisation of a capital asset which will be assessed on capital account under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased Property A jointly with your spouse as a family home.

You moved into Property A immediately and have lived in there since. You do not and have not in the past owned any other real property.

You incorporated a company jointly with your sibling some years later.

The company purchased a property (Property B) adjacent to Property A.

You agreed to sell a portion of your land from Property A to the company for market value and a contract was signed.

The company purchased the portion of land from you 'as is'. That is, no work was undertaken by you in order to sell the portion of land.

The company undertook development activities to convert Property B and the portion of land from Property A into two new properties. You, as an individual, have not actively participated in the subdivision.

You have not been involved in any subdivision activities in the past.

The company has paid all costs and assumed all risk involved with the subdivision.

You continue to live in the house located on Property A.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

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