Edited version of private advice

Authorisation Number: 1051845750484

Date of advice: 27 May 2021

Ruling

Subject: Sale of property - income or capital

Question

Will the profit from the sale of the property be assessable as statutory income under Parts 3-1 and 3-3 of Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, after considering all the factors as to whether the sale of the property amounts to an isolated business transaction, is in relation to the carrying on of a business or is the mere realisation of an asset, it is agreed the sale of the property is merely the realisation of the asset. It is accepted there was not a profit-making intention, neither on acquisition or during the period of ownership; it was never used for income producing purposes; you were not involved in the rezoning and you have not undertaken such a property transaction previously. In addition, you only undertook limited works in relation to the property and the risk of a disaster affecting the property again is a valid reason to realise the asset.

Since it is considered that you have merely realised an asset, gains made on the transaction will be subject to the capital gains tax (CGT) provisions under Parts 3-1 and 3-3 ofthe ITAA 1997. Further information on CGT and the sale of property can be found by searching the ATO website ato.gov.aufor QC code 52196.

This ruling applies for the following period periods:

Income year ended 30 June 2020

The scheme commences on:

DDMMYY

Relevant facts and circumstances

You are a trust with a corporate trustee

The trustee was incorporated on DDMMYY

On or around DDMMYY the trustee entered into a contract of sale to acquire a property.

By the execution of a trust deed on or around DDMMYY the trustee executed a deed for you.

You were nominated as the purchaser of the property and final settlement occurred on DDMMYY.

At the time of purchase the property had a commercial zoning. This resulted in a value much lower based on rate valuation.

Throughout your ownership period of the property you used it for private purposes.

The property was rezoned. This rezoning was not instigated by you, however this significantly raised the valuation for both rates and land tax purposes.

On DDMMYY a disaster destroyed the property with significant damage. Investigation as to the cause was inconclusive, however suspected third party interference.

On DDMMYY you entered a contract of sale for the sale of the property. You had decided to sell the property due to change of circumstances after the disaster and to limit liability associated with the site. A lease was also signed and the lessee uses the site.

Settlement has occurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 112-25

Income Tax Assessment Act 1997 Section 118-20

Income Tax Assessment Act 1997 Division 115

Income Tax Assessment Act 1997 Section 995-1