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Edited version of private advice
Authorisation Number: 1051612662715
Date of advice: 28 November 2019
Ruling
Subject: Sale of ownership interest- mere realisation of a capital asset.
Question
Was the sale of the ownership interests in the two dwellings, considered a mere realisation of a capital asset?
Answer
Yes. Any proceeds from the sale of your ownership interest in the two dwellings, represents a mere realisation of a capital asset which will fall for consideration under the capital gains tax provisions in Parts 3-1 and 3-3.
This ruling applies for the following periods:
Year ending 30 June 2019
Year ending 30 June 2020
Relevant facts and circumstances
You and spouse entered into a land contract with two family members and purchased a property a number of years ago.
The property consisted of a pair of semi-detached dwellings on a single title.
The two family members did not have the balance of the purchase price in savings to acquire 100% property. It was agreed between both parties for exchange for the outstanding funds required to acquire the property. You and your spouse would acquire ownership proportionate interest in the property.
Due to the family members work continuing in another state it was decided to rent out the property under a residential tenancy agreement which commenced shortly after the property was purchased.
While awaiting the return of the family member's from their secondment period, assessments were conducted on the property to estimate costs of the renovations, the cost of demolishing the existing pair of semi-detached dwellings, subdivision of the Torrens title and construction of a new pair of semi-detached dwellings.
After comparing the above estimated costs and consulting with an independent planner, the family members concluded to knock down and re-build.
Development approvals were sought from Council and approvals to commence work were received one month later.
The tenants vacated the dwellings the following year, in anticipation of the construction to be undertaken.
The demolition and building works were conducted by a licenced professional builder as per the requirements of DA. The works performed by the builder pursuant to a subcontracting agreement.
You have provided the costs incurred in relation to subdivision and demolition.
You and your spouse incurred a proportionate amount in the subdivision and build of the dwellings.
Construction was completed. The works resulted in two equally sized registered Torrens title lots and, a new pair of semi-detached dwellings.
Once construction was complete you and your spouse moved into the dwelling.
It was planned to rent out one of the dwellings but due to the financial strain on the family members the dwelling was sold.
The second dwelling was also sold due to financial hardship some time later.
Neither of you or any related entities have any intentions or plans to be involved in any future property development or land subdivision activities.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 112-25
Income Tax Assessment Act 1997 section Part 3-1
Income Tax Assessment Act 1997 section Part 3-3