Edited version of private advice

Authorisation Number: 1051850666997

Date of advice: 11 June 2021

Ruling

Subject: Capital versus revenue

Question

Will the gain from the disposal of the property be treated as a mere realisation of a capital asset and taxable under section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

The sale of the property will be regarded as a mere realisation of a capital asset as outlined in Taxation RulingTR 92/3 which considers the assessability of profits on isolated transactions.

The term isolated transactions refers to:

•         those transactions outside the ordinary course of business of a taxpayer carrying on a business, and

•         those transactions entered into by non-business taxpayers.

The transaction was not entered into in carrying out a business operation. The taxpayer intended to build new units for long term investment. No work was done and the property was sold.

It is considered that the proceeds from the sale of the property will be subject to the capital gains tax (CGT) provisions in Parts 3-1 and 3-3 of the ITAA 1997.

Question 2

If the answer to question 1 is yes, does the 50% discount apply to the gain?

Answer

Yes

A trust is eligible for the 50% CGTdiscount provided that it has held the property for at least 12 months before it is sold (section 115-100 of the ITAA 1997). As the trust held the property for more than 12 months it is eligible for the discount.

This ruling applies for the following:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The trust purchased a property as a long-term investment with the intention to demolish the property's existing building and construct a number of units, after September 1985.

In preparation for the new construction the trust paid various planning fees. Due to a lack of funds to cover the costs of the build, the property was sold before the construction began.

The property was used to produce rental income until it was sold several years later.

No work such as demolition or clearing of the land was undertaken prior to the sale.

The trust has not carried out any property development activities in the past and has ceased activity since the sale of the property and does not intend to start any new property development activities in the future.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 115-100