Edited version of private advice

Authorisation Number: 1051920009944

Date of advice: 11 March 2022

Ruling

Subject: CGT - subdivision

Question 1

Will the proceeds received from the sale of the vacant subdivided lots be assessable as ordinary income, on revenue account, under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as a result of carrying on a business of property development or as a result of an isolated profit-making transaction?

Answer

No.

Question 2

Will the proceeds received from the sale of the vacant subdivided lots be assessable as statutory income, on capital account, under Parts 3-1 and 3-3 of the ITAA 1997?

Answer

Yes.

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 on capital account 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 ended 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You purchased vacant land with your spouse several years ago.

At the time of purchase, you planned to build a home to live in as your main residence.

As it was anticipated that the construction cost would be large, you had to save towards the anticipated cost before proceeding with drafting plans to enable construction.

You contacted a building design drafting service to commence plans for a house. After receiving a quote to build and complete the soil test, further time was required to save money towards building costs.

During this time, you separated from your spouse. As part of the divorce settlement, it was agreed that the current family home would be given to your spouse and you would receive sole ownership of the vacant land.

At this point you still intended to build a house for yourself on the land to live with your children.

It became apparent to you that funding the construction of a large and expensive house as originally planned was not viable on a single income. In the same month you discovered that another vacant landowner in the area had applied and successfully been granted planning permission by the local council to subdivide their block of land.

A planning permit was issued by the council for subdivision into two equal lots.

Subsequent council approvals were required for engineering works related to the subdivision as part of the planning permit.

The only construction works for the subdivision of land were boundary fencing, a driveway for each block and infrastructure works including sewerage, stormwater, electrical and NBN connections. This work was required as part of the council's subdivision permit.

The two lots have now been sold.

You have not undertaken any subdivision activities previously.

You do not work in role that is related to subdivision activities.

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