Edited version of private advice

Authorisation Number: 1051696734669

Date of advice: 15 June 2020

Ruling

Subject: Disposal of land from a development and sale arrangement

Question 1a

Will the proceeds from the development and sale of Stages 1A and 1B by Trust A be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer: Yes.

Question 1b

Will the proceeds from the development and sale of Stages 1A and 1B by Trust A be assessable income pursuant to section 15-15 of the ITAA 1997?

Answer: No.

Question 2

Will the proceeds from the development and sale of Stages 1A and 1B by Trust A be assessed under the capital gains tax provisions in Part 3-1 and 3-3 of the ITAA 1997?

Answer: No.

Question 3

If the answer to Question 1 is 'Yes' and it is found that the Trust was carrying on a business of property subdivision and sale, when did it start holding the Land as trading stock?

Answer: The relevant date as to when the land was 'committed to' or 'ventured into' a land development business was when the intention to take steps to develop and subdivide the land was formed, and the activities directed to that end began.

This ruling applies for the following periods:

Income year ending 30 June XX

Income year ending 30 June XY

Income year ending 30 June XZ

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Trust A and the Land

Co X is the trustee of Trust A established on XX/XX/XX (which is a family discretionary trust established to benefit the family of Individual A and Individual B.

Co X acquired certain land situated on Address X under contract dated on or about XX/XX/XX, and is property of Trust A.

The 2 parcels of land that are subject to the subdivision and development process include:

·        Lot Z at Address X, which includes the land development of Stages 1A and 1B. It is owned by Trust A. The land was a pre-CGT asset.

·        Lot Y at Address Y, which includes the main residence of Individual B. It was owned by Individual A (now deceased). The Will of Individual A created a life interest in respect of the property to Individual B.

Trustee of Trust A has conducted and continues to conduct farming operations on both of the above properties at all relevant times. It has also farmed two other properties, both now sold.

Individual A died on XX/XX/XX. The executrix of the estate was Individual B.

Individual B inherited the residue of Individual A's estate which was the ordinary shares in Co X, and has become the sole director of Co X.

The Will of Individual A created a life interest for Individual B in respect of Lot Y and, on the termination of Individual B's life interest, the interest in remainder passes equally to three testamentary trusts. Individual B has continued to live in the main residence and has no plans to vacate the property. The remainder of Lot Y is used for farming.

Individual A and Individual B have three children. Individual C is their eldest child and within a class of beneficiary of Trust A. Individual C now manages and conducts the farming operations of Trust A and has done so for some time. Individual B manages the banking and accounts for the farming operation.

The farming operations generate relatively substantial annual income for Trust A commonly in the region of $X million per annum of gross income from the sale of produce.

There have been no attempts to sell the land in its current un-subdivided state. A number of unsolicited offers have been received from or on behalf of a number of different property developers. The offers have typically ranged from $X to $Y million. None of the offers were accepted by Trust A.

History of the planning, subdivision and development

The City Plan showed the properties as within emerging community, sport and recreation zoning designations earlier on.

There was a resumption during the first half of the 1990's. Town Planners engaged by Trust A as part of the first resumption process indicated that the properties were vulnerable to future resumptions.

Therefore, as a defensive response to the first resumption, the family lodged an initial application to develop in late 200X.

Court Orders were obtained later (by Trust A and Individual A) approving the application (preliminary approval).

A second resumption occurred in 200Y as a resumption by BCC for future sporting requirements and the resumed land included some of the land covered by the preliminary approval.

The preliminary approval would have shortly expired after that unless an application for a Development Approval was lodged in respect of the property.

So, an application for a Development Approval (DA) was lodged, which was ultimately granted (by way of a negotiated outcome) X years later.

Development Approval

The parcel of land on Address X formed part of the subdivision and development contained in the DA.

The nature of the application was for a Development Permit, the Activity was subdivision of land and the description of proposal was Stage 1A-7 Lots and new road.

The DA also negotiated permits for a staged development (X Stages) incorporating about over XYZ residential lots, parkland, drainage and other details.

Six years after the initial application, the local council's decision notice pursuant to a Sustainable Planning Act was issued.

The relevant information in the negotiated decision notice was included as part of the facts of the ruling. It also included a copy of the Plan of configuration lots.

The DA is valid for 5 years from the approval date, provided that a plan is sealed before then in relation to stage 1A. Stage 1A is a smaller subdivision with only Z lots, and Trust A understands that timely development of Stage 1A would likely protect all or most of the development rights established by the DA.

There is also notionally a separate block within the approved plan of subdivision which is earmarked for resumption and future road upgrades.

The 2 Parcels of Land and the Development Management Agreement

·        Lot Z at Address X is owned by Trust A.

Trust A has recently decided to proceed with Stages 1A and 1B of the development in order to preserve the DA.

Trust A made plans to commence Stages 1A and 1B of the development by entering into a Development Management Agreement (DMA) that was executed on XX/XX/XX.

The parties to this agreement are as follows:

·        Trust A (Owner); and

·        Co Z (Development Manager).

The Co Z has subsequently managed the appointment of other consultants required to progress the required authority approvals prior to development activity. Trust A will directly pay all costs for all consultants and contractors.

The Co Z has been appointed until the sale of the final lot of Stages 1A and 1B. No construction activity has been progressed yet.

The relevant clauses of the Development Management Agreement have been included as part of the facts of this ruling.

·        Lot Y at Address Y, includes the main residence of Individual B

No decision has been made by Trust A for the development of the remaining land, being the remaining part of Lot Z of Address X and Lot Y at Address Y.

Valuation Report

On XX/XX/XX a Valuation Report for the development was prepared for Trust B by a Valuer. This document forms part of the facts of this ruling.

The valuation report included some indicative costs for Stages 1A and 1B. Relevant information in the report have been included as part of the facts of this ruling.

Development Costs and Estimated Proceeds

The family is fully funding the development works from family resources with no external borrowings.

The present estimate of costs of developing subdividing and selling Stages 1A and 1B is $X million of which construction costs are estimated at $X million. The balance is estimated to comprise GST and fees to real estate agents and legal costs.

The historical development costs of Trust A are estimated at $XX.

The present estimate of the gross proceeds of sale of the YZ lots in Stages 1A and 1B is $XX million before GST.

A reasonable allocation of current market value to the area within Stages 1A and 1B (in its underdeveloped form) would be $X.

Nature, scale and complexity of the development

Given that the property is a working farm, the topography of the site provides good building contour in its natural state which is suitable for development, though some cut and fill will be required. Some portions of the area are well elevated, providing good local views.

As farming land, the site is largely cleared and is not subject to any significant vegetation constraints. A small number of the remaining trees are required to be retained within the proposed open space area.

The site has good access to required water and sewer infrastructure.

The details of Stages 1A and 1B subdivision and development are further described in the Valuation Report. Furthermore, there are development approval conditions under the DA (for example, erecting acoustic barrier, granting easements, and constructing external roadworks and stormwater drainage) that must be included at each stage. The details are also described in the Valuation Report, which forms part of the facts of this ruling.

The development of Stages 1A and 1B will not impact any material farm infrastructure and will have a minimal impact on the ongoing farming operations with around X% of the property being impacted.

No insurance has been taken out in relation to the development.

The risk of the development and sale price of the lots for Stages 1A and 1B sits completely with Trust A.

Trust A has engaged various consultants to progress the DA and this included planning, engineering, legal, landscaping etc. The relevant engagements were listed in the facts.

Up until the entering of the DMA agreement, there has been no or minimal development or construction work on the land.

There is no marketing plan for the development of Stages 1A and 1B. The lots will be placed with a local real estate agent for sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-15

Income Tax Assessment Act 1997 Division 70

Income Tax Assessment Act 1997 section 70-10

Income Tax Assessment Act 1997 section 70-30

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 118-20

Reasons for decision

Question 1a

Will the proceeds from the development and sale of stages 1A and 1B by Trust A be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The proceeds received from the disposal of the blocks of land are assessable income according to ordinary concepts under section 6-5 of the ITAA 1997.

Detailed reasoning

As a general principle, profits from the subdivision and sale of land will either be assessable as ordinary income under section 6-5 of the ITAA 1997, or statutory income under the capital gains tax (CGT) provisions of the ITAA 1997.

Where the profit has been made as a result of a taxpayer carrying on a business of property development or as a result of a taxpayer entering into an isolated business transaction, the profit will be assessable as ordinary income. However, where the profit is a mere realisation of a capital asset, the profit will be statutory income subject to the capital gain tax provisions under Part 3-1 and 3-3 of the ITAA 1997.

Carrying on a Business of Property Subdivision and Sale

The principle in Californian Copper Syndicate v Harris (1904) 5 TC 159 provides that the mere realisation of capital assets, such as land, does not give rise to income according to ordinary concepts if the realisation is carried out in the most advantageous manner.

In this case, the disposal of the blocks of land from Stages 1A and 1B involves entering into an arrangement to subdivide and significantly develop it in a business-like manner prior to sale. Therefore, Trust A is found to be engaged in a business of subdivision, development and sale. It has ventured the land into that business rather than merely realising a capital asset in the most advantageous way (Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 82 ATC 4031).

Where a business is being carried on is a question of fact determined on a case by case basis with regard to a range of indicia. Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production is a useful reference outlining the main indicators of carrying on a business that the courts have considered as relevant.

These indicators have been considered and the following factors support the conclusion that Trust A has commenced the business of land subdivision and sale.

The level of financial risk borne by Trust A

Although Co Z have been engaged to undertake the development, the ultimate decision maker and the funding of the development works will be by Trust A.

Clause X of the DMA provides that Trust A has an unfettered right to make all decisions concerning the project (including decisions about funding and the disposal of the land). Trust A also has absolute discretion to prepare and vary the Approved Budget.

Clause X of the DMA identifies a Project Control Group's functions which involves monitoring the progress of the project. Trust A and parties elected by Trust A are represented there. Even if the PCG has not been established at commencement, it provides a mechanism sanctioned by the DMA to enable Trust A to maintain control and monitor the development. Clause X states that the submission of the PCG Report and PCG meeting must occur no less frequently than monthly. Furthermore, the PCG does not have any right to make decision on behalf of or to veto any proposal of Trust A.

Trust A will incur the project costs directly, or Trust A will have to provide prior written consent in relation to costs incurred by Co Z. Clause X of the DMA provides the meaning of Project Costs (including but not limiting to external consultants' fees and all professional costs).

Trust A will also fully fund the development works with no external borrowings. The Valuation Report provides relevant information on the projected proceeds and the estimated costs of the project. The estimated costs of developing, subdividing and selling Stages 1A and 1B is $X million GST inclusive (including $X million on construction costs), and the estimated gross proceeds of those lots is $XX million.

It is also relevant to consider the level of risk assumed by the other parties and whether there is a profit-sharing arrangement. The DMA provides that Co Z will be paid X% of gross realisation at settlement of the developed lots, and a monthly retainer of $XXXX per month excluding GST.

Based on all the terms above, Co Z is considered to be providing project management services only. The development management fee is consideration for the provision of services provided to Trust A pursuant to the DMA. It is fixed (i.e. based on a fixed percentage of the gross sale of the lots) and Co Z itself, will incur little or no risk.

Trust A clearly has a view to profit because it not only has control of decision making of the project; it bears all the substantial financial risk of the development and is entitled to all the remaining profits.

The scope, scale, duration and degree of complexity of the subdivision and development

When considering the scope, duration and degree of complexity of the subdivision and development - the evidence supports that the eventual sales are less likely a mere realisation of capital.

Firstly, Trust A has been directly involved with engaging external consultants to secure the Development Approval (DA). The process involved extensive drafting of plans for the development of over XYZ lots on the land. The scope and scale of the development is considered large and complex and it has taken a number of years and continuous negotiations with different parties to secure the DA.

The DA also negotiated permits for a X stage development incorporating over XYZ residential lots, parkland, drainage and other details. The staged development is considered to be significant in scale and will take a substantial period of time to complete.

Although Stages 1A and 1B under the DMA deals only with a smaller part of a larger development (as presented in the DA with 6 staged development), it cannot be considered and viewed as a standalone arrangement in isolation. Albeit, Trust A has submitted that it has made no decision to deal with the remaining property, it does not mean it will not proceed with other stages pursuant to the DA at a later time.

Furthermore, the requirements for Stages 1A and 1B are also described in Clause X of the Valuation Report. The Valuation Report identifies extensive development approval conditions under the DA, which includes but is not limited to erecting an acoustic barrier, granting easements, and constructing external roadworks and stormwater drainage. Therefore, there are significant works that will be required to bring the project to a condition ready for sale. Once subdivision is completed, Trust A will also directly engage a local real estate agent to market and sell the subdivided lots.

There is a multifaceted and involved plan for land development, and the DMA involves the first stage of a larger development only. There is no evidence suggesting that Trust A does not intend to pursue the other stages, and this venture is complex and organised.

Whether Trust A held the land for a considerable period prior to entering into the Development Management Agreement, and the extent of farming activity conducted on the land prior to the arrangement

Co X acquired the land situated on Address X under contract dated on or about XX/XX/XX, and is property of Trust A.

The Commissioner accepts that Trust A acquired the land originally on capital account to conduct primary production activities. It is also accepted that Trust A has conducted and continues to conduct farming operations on that property and other properties for a considerable period of time. The other properties include the contiguous property owned by Individual A and two other properties which have already been sold.

Trust A has conducted a farming operation on these properties for a considerable period generating relatively substantial annual income. The income of the trust for income years ending 30 June 2018 and 30 June 2019 are as follows:

·        20XX - $X million

·        20XX - $X million

It is also accepted that Trust A will continue its farming activities on the land when Stages 1A and 1B are being completed. The current development will only have X% impact on the property.

Furthermore, it is not disputed that Trust A wanted to pursue Stages 1A and 1B development before the DA expires in XX/XX/XX. It is also accepted that Trust A wanted to pursue the arrangement originally because it could secure better compensation than what was offered under land resumption.

However, it is considered that this was not the sole reason that motivated Trust A to pursue Stages 1A and 1B of the development. Trust A negotiated and sought for the approval of the DA over a long period of time and the DA incorporated a detailed staged subdivision of the whole of the two parcels of land. Trust A has engaged consultants to determine the profitability of the venture and has entered or will enter into other arrangements to undertake the project pursuant to the DA. These factors clearly show an intention to venture the land into a business of profitable resale or property subdivision.

So even if Trust A originally acquired the land to conduct primary production operations, it does not mean it did not change its intention at a later date. It has and could continue to embark on a different venture in the nature of a business, where the land is applied for a different purpose. The activities to be undertaken (i.e. firstly, Stages 1A and 1B, then plans for the other stages) will significantly change the character of the land. The DA shows that it will not be used for primary production, and will be applied for the purpose of subdivision and sale.

Applications for the planning approvals by Trust A

There is a clear indication from the facts that Trust A actively pursued the application for planning approvals shortly after the 1987 Town Plan, and the 2000 City Plan which showed the properties as within the "Emerging Community" and "Sport and Recreation" zoning designations.

The initial application for "preliminary approval" to develop was lodged in October 2004. On 5 July 2010, an application for a Development Approval was lodged, and was ultimately granted on 21 July 2016.

Further, the various engagements of town planners, development consultants and valuers support the fact that Trust A was actively involved and intended to pursue the land subdivision and development to gain greater profits.

The level of active involvement of Trust A in the activities

At each stage, Trust A's participation has not been minimal, and its responsibilities have not been limited to just mandatory tasks.

As described above, Trust A has actively participated during the planning process. It has also shown no intention to dispose of the land in its current state.

It has directly engaged and conferred with professionals and consultants to progress the DA and this included activities such as planning, engineering, legal, landscaping etc.

The list of past engagements was included.

As described above, Trust A will also play an active role in the management and decision making of Stages 1A and 1B development under the DMA.

Accordingly, on the balance of probabilities, weighing all the facts as a whole, the Commissioner is satisfied that Trust A has commenced the business of property subdivision and sale.

Isolated Transaction

The decision of the Full High Court in Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 is relevant when considering whether an entity is carrying on a business, or alternatively is earning ordinary income by way of deriving a profit from an isolated profit-making undertaking or scheme

The basic distinction between a development and sale of property as part of a business, or alternatively, a 'profit making' undertaking or scheme is that the latter will generally be a one-off event and not carried out in an overly organised or systematic manner. However, the overriding purpose and intention of the person entering into the venture must be to make a profit.

Even where the sales of land are not regarded as part of carrying on a business of property subdivision and sale, the facts in this case support the determination that it is an isolated business transaction, or a transaction entered into with the purpose of profit making by sale. In such an instance, the profits from an isolated business transaction also constitute ordinary income and are assessable under section 6-5 of the ITAA 1997.

Whether the nature of the transaction amounts to a business operation or commercial transaction

In Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 211, the High Court stated that:

...a receipt may constitute income, if it arises from an isolated operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction.

Similarly, in paragraph 12 of Taxation Ruling TR 92/3, the Commissioner has stated that for a transaction to be characterised as a 'business operation' or a 'commercial transaction', it is sufficient that the transaction is business or commercial in character.

In determining whether an isolated transaction amounts to a business operation or commercial transaction the following factors are relevant (paragraph 13 of TR 92/3):

a) the nature of the entity undertaking the operation or transaction;

b) the nature and scale of other activities undertaken by the taxpayer;

c), the amount of money involved in the operation and the magnitude of the profit sought or obtained.

d) the nature, scale and complexity of the operation or transaction;

e) the manner in which the operation or transaction was entered into or carried out;

f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction;

g) if the transaction involves the acquisition and disposal of property, the nature of that property; and

h) the timing of the transaction or the various steps in the transaction.

Application to Trust A

Whilst the private ruling application only addressed the treatment of the proceeds for Stages 1A and 1B development, the other facts such as the planning process and the intended plans under DA are relevant factors too.

The factors considered in TR 97/11 are similar to TR 92/3. Therefore, the same facts and indicia considered in relation to carrying on a business of land subdivision apply here too.

The following factors (also discussed above) support that Trust A has an isolated profit-making undertaking:

·        Given the size of the land and the scope of the development, it is considered complex and the whole operation is considered large in scale.

·        The amount of money involved in the operation and the magnitude of the profit sought or to be obtained are both substantial.

·        Trust A has actively pursued the DA application and engaged various consultants to achieve its approval.

·        Trust A and its representatives will also play an active role in the management and decision making of Stages 1A and 1B development under the DMA.

·        Trust A will fund the development from its own funds and will carry the substantial risks and rewards of the project.

When considering Trust A's intention, it is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose of entering into the transaction. It is sufficient if profit-making is a significant purpose.

As determined above, Trust A has changed its intention and ventured the land into profit resale and property subdivision. Thus, it has a profit-making purpose from an isolated transaction.

Conclusion

The original purpose for the purchase of the property was to undertake a primary production business and this included the land surrounding the contiguous property that was used as a main residence.

Whilst the decision by Trust A at this point in time is to only undertake the development of Stages 1A and 1B, the DA has been actively pursued over a significant number of years through local government authorities and approval bodies to grant a permit for not only Stages 1A and 1B but for the continuation and development of the entire property.

It can also be concluded that the size and scale of the subdivision in its entirety is of a large scale, and there is a clear intention and purpose of Trust A to enter into the transaction to make a profit or gain. Even the development requirements under Stages 1A and 1B alone are considerable works, and Trust A will manage the sale of the subdivided lots thorough a real estate agent.

Accordingly, on the balance of probabilities, weighing all the facts as a whole, the Commissioner is satisfied that the proceeds from Stages 1A and 1B development are profits either: from an isolated transaction or because it had commenced the business of property subdivision and sale. Therefore, the proceeds received from the sale of the residential lots are ordinary income assessable under section 6-5 of the ITAA 1997.

Question 1b

Will the proceeds from the development and sale of Stages 1A and 1B by Trust A be assessable income pursuant to section 15-15 of the ITAA 1997?

Summary

The proceeds from the subdivided land under Stages 1A and 1B development are not assessable income pursuant to section 15-15 of the ITAA 1997 (being income arising from carrying on or carrying out of a profit-making undertaking or plan).

Detailed reasoning

Subsection15-15(1) of the ITAA 1997 includes in assessable income profit arising from the carrying on or carrying out of a profit-making undertaking or plan. However, subsection 15-15(2) of the ITAA 1997 provides that such a profit will not be assessable under the section if it:

(a)   is assessable as ordinary income under section 6-5; or

(b)   arises in respect of the sale of property acquired on or after 20 September 1985.

As determined in relation Question 1(a) above, the receipts from the sale of the subdivided land constitute ordinary income and are assessable under section 6-5 of the ITAA 1997.

Conclusion

Therefore, paragraph 15-15(2)(a) of the ITAA 1997 applies to exclude the application of subsection 15-15(1) of the ITAA 1997 in this case.

Question 2

Will the proceeds from the development and sale of Stages 1A and 1B by Trust A be assessed under the capital gains tax provisions in Part 3-1 and 3-3 of the ITAA 1997?

Summary

The proceeds from the disposal of the subdivided lots under Stages 1A and 1B development will not be assessed under the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997.

Detailed reasoning

A CGT asset is defined in section 108-5 (1) the ITAA 1997 and includes any kind of property. Specifically, each block of land is a CGT asset.

A capital gain or a capital loss arises where a CGT event happens to each of the blocks of land.

However, section 118-20 of the ITAA 1997 provides that a capital gain you make is reduced if the amount is otherwise assessable under another provision of the ITAA 1997.

Therefore, whilst a CGT event may in fact happen, if an amount is otherwise included as ordinary assessable income under section 6-5 of the ITAA 1997 then any capital gain will be disregarded to the extent it is included as ordinary income.

Conclusion

Therefore, the receipts from the disposal of the subdivided lots under Stages 1A and 1B development will not be assessed under the capital gains tax provisions.

Question 3

If the answer to Question 1 is 'Yes' and it is found that Trust A is carrying on a business of property subdivision and sale, when did it start holding the land as trading stock?

Summary

As per Question 1a, Trust A is carrying on a business of property subdivision and sale, and the proceeds will be assessable income under section 6-5 of the ITAA 1997.

Land will be treated as trading stock for income tax purposes if it is held for the purpose of resale and when Trust A embarks on a definite and continuous cycle of operations designed to lead to the sale of the land. It is not necessary that the acquisition of land be repetitive; a single acquisition of land for the purpose of subdivision and sale by a business commenced for that purpose would lead to the land being treated as trading stock.

The relevant date as to when the land is 'committed to' or 'ventured into' a land development business is when the intention to take steps to develop and subdivide the land is formed, and the activities directed to that end began.

Detailed reasoning

Taxation Determination TD 92/124 Property Development: in what circumstances is land treated as 'trading stock'? provides that land is treated as trading stock for income tax purposes if it is held for the purpose of resale and a business activity which involves dealing in land has commenced.

The term 'trading stock' is defined very widely to include anything produced, manufactured or acquired, that is held for manufacture, sale or exchange in the ordinary course of business (section 70-10 of the ITAA 1997). This is taken to include tangible items, such as land.

An item can qualify as trading stock if it is held for manufacture, sale or exchange. Therefore, it is its current use, rather than the purpose of its original acquisition, which is relevant in determining whether or not the item constitutes trading stock.

Section 70-30 of the ITAA 1997 applies where an item which is already owned by the taxpayer (but is not held as trading stock) starts being held as trading stock.

In Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4277, the Full Federal Court held that the relevant date as to when the land is 'committed to' or 'ventured into' a land development business is when the intention to take steps to develop and subdivide the land is formed, and activities directed to that end began. In order to determine this question, it is important to look at the owners' purpose and any activities.

The change of intention

As discussed above, there was an intention of profitable resale when Trust A pursued the approval of the DA and subsequently entered into the DMA to develop Stages 1A and 1B pursuant to the DA.

It is acknowledged that the land has been used for farming operations. However, the purpose of landholding can alter (e.g. from holding it for farming to using it in carrying on a business of property subdivision and sale).

As discussed above, the facts support a clear profit-making intention when Trust A pursued the approval of the DA. Furthermore, it did not pursue to sell the land, rather it subsequently entered into an arrangement to actively develop Stages 1A and 1B pursuant to the DA.

Conclusion

In this case, it is concluded that Trust A is carrying on a business of property subdivision and sale. The activities of Trust A amount to a business activity which involved dealing in the land.

The relevant date as to when the land was 'committed to' or 'ventured into' a land development business was when the intention to take steps to develop and subdivide the land was formed, and activities directed to that end began.

For instance, the time could be when Trust A entered into the DMA and began activities to subdivide pursuant to Stages 1A and 1B of the DA.