Edited version of private advice

Authorisation Number: 1051706047015

Date of advice: 25 June 2020

Ruling

Subject: Property - CGT - income v capital

Question 1:

Will the profit from the sale of the Lot be treated as ordinary income under section 6 -5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1:

No, the proceeds from the sale of the Lot will not be ordinary income and not assessable under section 6-5 of the ITAA 1997as either:

·         the carrying on of a business in accordance with the factors listed in Taxation Ruling 97/11; or

·         a profit-making or commercial transaction in accordance with Taxation Ruling TR 92/3.

Question 2:

Will the profit from the sale of the Lot be treated as statutory income under the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997?

Answer 2

Yes, any proceeds received on the disposal of the Lot will represent a mere realisation of capital assets which will be assessed under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

Question 3

Does the CGT 50% discount 12-month period start from the contract date for both the land and the dwelling?

Answer 3

Yes, in this case the construction of the dwelling is considered to be a fourth element capital improvement to the land, therefore the discount period will start from the contract date of the purchase of the land.

This ruling applies for the following period(s)

Year ended 30 June 20XX.

Year ended 30 June 20XX.

The scheme commences on

1 July 20XX.

Relevant facts and circumstances

You purchased part of a vacant block of land located (the property).

The property was purchased with planning permits approved.

The block of land located consists of three separate lots Lot A, Lot B, and Lot C.

Person A purchased one of the other two remaining lots.

Person B purchased one of the other two remaining lots.

After the property was purchased land development activities started.

The building contract was signed between Company A and you, relating to the construction of the unit located at Lot B.

The property is approximately XXXm2.

You have built a unit on the property.

Soon after you purchased the property the building plans were endorsed under the Local City Council Scheme.

A short time later building works commenced, and the following occurred:

·   the Building permit and Inspections were approved;

·   the Soil Report was approved; and

·   the Base Board System certificate was approved.

No rezoning to the property has occurred since you have been the owner - the property was and is zoned as residential.

The development of the property will be funded through private funds.

The property has been completed and a certificate of occupancy has been obtained.

The property has not been placed on the market since the property was purchase by you.

No offers have been made on the property since it was purchased by you.

The Market Value of the property prior to development was the purchase price of $XXX,XXX

The property will be valued at approximately $XXX,XXX after the completion of the building works.

You have not completed an estimate of a profit or loss statement on the sale of the property as you plan to keep the property and rent it out.

You are not actively marketing the property.

You do not have a history of investing in property or property development and do not expect to develop any other properties in the future.

You are a sole trader, and you are registered for GST in this role.

You have been registered for GST since October 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-15

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 112-25

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3