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Edited version of private advice
Authorisation Number: 1051524173454
Date of advice: 31 May 2019
Ruling
Subject: Property demolition and subdivision
Question 1
Will the profit from the sale of the lots from be assessable as ordinary income under section 6-5 of the ITAA 1997 in the course of carrying on a business?
Answer
No. The activities related to the subdivision of the property are not part of carrying on a business.
Question 2
Will the profit from the sale of the lots be treated as ordinary income under section 6-5 ITAA 1997 as a result of an isolated transaction?
Answer
No. The activities related to the subdivision of the property are not commercial in nature or part of carrying on a business.
Question 3
Will the proceeds from the sale of the lots be treated as statutory income under the capital gains tax provisions (CGT) in Parts 3-1 and 3-3 of the ITAA 1997?
Answer
Yes. The Commissioner considers that proceeds from the sale of the lots will be subject to the CGT provisions in Parts 3-1 and 3-3 of the ITAA 1997.
Question 4
Will the sale of the lots be subject to Goods and Services Tax (GST)?
Answer
No. Having applied all the principles in MT 2006/1 to the present circumstances, we conclude that the sale of the property will not amount to an enterprise and the sale of the subdivided lots will not be taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999. 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 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are the trustee of a unit trust. The units in the trust are all owned by Person A.
The trust acquired residential investment properties for the sole purpose of leasing and holding for long term capital growth.
Property A was purchased and leased directly after settlement for a period of time.
Shortly after, another property was purchased and leased directly after settlement.
Person A had a significant change in their circumstances and it was decided to market one of the properties for sale.
You provided details of the property and the size of the land.
You contacted several different selling agents with view to selling Property A.
Every agent advised selling the property in its current form would be unfavourable, and produce a loss. It was suggested that you could subdivide the block into several vacant lots. You provided a copy of the correspondence to the agent.
You obtained appraisals for lots if subdivided.
You decided to subdivide to avoid making a substantial loss.
You engaged a professional to assist and manage the subdivision process.
You received subdivision approval, conditional on all structures present on proposed lots at the time of subdivision approval being demolished and all materials removed.
The existing house was demolished to meet the conditions for subdivision.
You have provided details of the costs involved.
You did not borrow any funds to fund your activity.
The vacant lots were listed for sale and titles for the subdivided lots were subsequently issued. One lot has been sold.
You have not been involved in any other subdivision activities or land developments.
You are not registered for GST.
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
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 195-1