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Edited version of private advice
Authorisation Number: 1051680910159
Date of advice: 15 May 2020
Ruling
Subject: Property subdivision
Question
Will the proceeds from the sale of the blocks be subject to the capital gains tax (CGT) provisions under Part 3-1 of Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
On balance, the sale of the subdivided lots is considered to be a mere realisation of a capital asset. Profits from the sale of the subdivided lots will not be assessable as ordinary income under section 6-5 of the ITAA 1997. The proceeds represent a mere realisation of a capital asset which will fall for consideration under the CGT provisions in Part 3-1 of the ITAA 1997.
This ruling applies for the following periods:
1 July 20XX to 30 June 20XX
1 July 20XX to 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts
You acquired an interest in a dwelling after 20 September 1985(the dwelling)
The land is approximately X sqm and the dwelling was your main residence.
Your spouse passed away a number of years ago and the dwelling fell into a state of disrepair.
You moved into a rental unit as the dwelling was not habitable.
You decided to demolish the existing dwelling and rebuild.
You will subdivide the land into a number of blocks and sell one of the subdivided blocks.
You will fund the cost of subdivision from savings.
You estimate that the land value prior to subdivision was approximately $X-$Y.
The approximate costs of the subdivision are an amount.
You will sell one of the subdivided blocks for $x to $y.
You have engaged a project manager who will undertake the necessary requirements in relation to the subdivision of the land. The approximate cost of this is an amount.
You did not acquire additional land.
You will have no major involvement in the subdivision process. External contractors will carry out the works in accordance with the development approval.
Neither you nor any related entities have been involved in any property development or subdivision activities.
Neither you nor any related entities plan to be involved in any property development or subdivision activities in the future.
There is no business plan.
The works only involved what was necessary to secure the approval.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 subsection 104-10(5)