Edited version of private advice

Authorisation Number: 1051907036592

Date of advice: 7 October 2021

Ruling

Subject: CGT - subdivision

Question

Will any of the proceeds from the sale of the subdivided lots of land be treated as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Based on the information provided, the proceeds from the sale of the subdivided lots 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.

Therefore, any proceeds received on the disposal of the subdivided lots 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.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

4 June 20XX

Relevant facts and circumstances

Beneficiary One and Beneficiary Two, along with Beneficiary Two's three children, Beneficiary Three, Beneficiary Four and Beneficiary Five (The Beneficiaries) inherited a property when the deceased passed away a number of years ago.

The deceased purchased the property before 20 September 1985 and lived in at as their main residence.

The Beneficiaries have the following ownership interest in the Property:

•         Beneficiary One: 27.5%

•         Beneficiary Two: 27.5%

•         Beneficiary Three: 15%

•         Beneficiary Four: 15%

•         Beneficiary Five: 15%

Beneficiary One and Beneficiary Two were also executors of the deceased's Estate.

The Property is approximately XXXX sq metres.

The Property is located in a residential zone. It has not been used to produce assessable income.

Beneficiary One and Two also inherited three rental properties from the deceased and still own these properties.

The State's Land Tax expense has made it very expensive to continue holding the land and two of the owners are now in retirement.

Beneficiary One and Two are both retired. Beneficiaries Three, Four and Five are now adults and are employees of various employment.

The Beneficiaries plan to subdivide the land into five equal lots. Each lot will be registered in the names of all five Beneficiaries.

The dwelling that existed on the Property has been demolished.

Very little is required to complete the subdivision. No roads or paths are required.

The market value of the Property is currently $XXXX.

The estimated cost associated with the subdivision is $XXXX. This will be funded by the Beneficiaries' own funds (a bank loan will not be required).

No subdivision activities have been undertaken as yet, but once they begin, the Beneficiaries will not be undertaking any activity themselves.

The Beneficiaries have not undertaken any subdivision activities in the past and do not plan to do so in the future.

They are not registered for GST.

The five subdivided lots land will be listed for sale with an independent Real Estate Agent. All five subdivided lots will be sold.

The estimated sale price of each lot is $XXXX

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3