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Edited version of private advice
Authorisation Number: 1051616141813
Date of advice: 3 December 2019
Ruling
Subject: Land subdivision - capital
Question 1
Will any proceeds from the sale of the Lot in Town A (the Lot) be considered ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 19997) as a result of carrying on a business of property development?
Answer
No. Having considered the relevant factors contained in Taxation Ruling TR 97/11, it is accepted that you do not carry on a business of buying, selling or developing land.
Question 2
Will any proceeds from the sale of the Lot be considered ordinary income under section 6-5 of the ITAA 1997 as a result of profit from an isolated commercial or business transaction?
Answer
No. Having considered the relevant factors contained in Taxation Ruling TR 92/3, it is accepted that any proceeds will not be assessable as profits from an isolated transaction.
Question 3
Will the proceeds from the sale of the Lot be subject to the capital gains tax (CGT) provisions in Parts 3-1 and 3-3 of ITAA 1997?
Answer
Yes. The sale of the Lot is considered to be a mere realisation of a capital asset and the proceeds will be subject to the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997. Proceeds from the sale of the subdivided lot will not be included in your ordinary income.
Question 4
Will the sale of the Lot be a taxable supply under section 9-5 A New Tax system (Goods and Services Tax) Act (GST Act)?
Answer
No. Having applied all the principles in MT 2006/1 to the present circumstances, we conclude that the sale of the lots does not amount to an enterprise for GST purposes. The sale of the Lot will be regarded as the mere realisation of a capital asset.
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your spouse (you) own as joint tenants a property in Town A (the property). You purchased the property in 20XX. It has been used as your main residence since that date.
You provided the size of the property and its value at acquisition. You undertook renovations when you bought the property. The property does not have town water connected.
The property is close to a major city.
It has always been zoned as a rural living area meaning that it is for residential use and located in a less densely populated area than cities. This can include agricultural or farming areas.
One of you was injured in an accident in 20XX and one of you is often away for business. As a result, the maintenance of the property is difficult and you now want to downsize.
A year later, you engaged the services of a developer to subdivide the land into several lots. Your original plan was to retain one lot as your main residence and sell the remaining lots.
You obtained a private ruling from the ATO in relation to that previously proposed development, and subsequently decided not to proceed.
Instead you decided to only subdivide one parcel (the Lot) that bordered the existing road. There is no requirement to build an access road. You provided the cost of the subdivision.
The Lot and the balance of land as a separate lot were subsequently registered. You have provided a copy of the property map and titles documents.
You will dispose of the Lot and retain the other lot as your main residence. You will engage a real estate agent to sell the Lot and provided its expected value.
You provided the estimated value of the property before subdivision.
You are not registered for GST.
You do not work in the building or development industry and you have not been involved in the building trade in the past. You have not undertaken any activities similar to the above mentioned in the past and do not intend to undertake any subdivisions in the future.
You expect that you will sell the remaining lot at some time in the future as one parcel of land.
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
Income Tax Assessment Act 1997 section 118-20
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 9-40
A New Tax System (Goods and Services Tax) Act 1999 section 195-1