Edited version of private advice

Authorisation Number: 1051955986207

Date of advice: 2 March 2022

Ruling

Subject: Am I in business? - isolated transaction

Question

Will the profit from the sale of subdivided Lots of land be treated as statutory income under the capital gains tax provisions in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (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 under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In 19XX (You)purchased a block of land.

The land was XX hectares across two titles. It was zoned rural residential and has not been rezoned.

In approximately 19XX, after the boundary was re-aligned, the smaller portion of land (XX hectares) on the second title, was sold.

You built your family home on the remaining hectares in 20XX, moving into the home shortly after.

There was a portion of the land on your block that you never visit. It is remote from your home and constitutes a significant overhead in relation to annual fire reduction, which you undertake yourselves.

Being unimproved it has attracted random dumping and unauthorised woodcutting, to the point where You regard it as a liability.

You are in your early sixties and are keen to reduce your workload, liabilities and general footprint.

Your home loan is becoming onerous in relation to your other outgoings.

You undertook the required environmental and physical studies in order to subdivide three Lots of approximately two hectares each. A landscape architect project managed the requirements for the required studies, which included fire, vegetation overlay and sight lines.

The studies were submitted to Council and approved in 20XX.

The development application was approved by Council in August 20XX.

Various financial constraints and contractor delays led to delays in the commencement of the subdivision and led to the requirement for subsequent extensions to Council approval. The extension was approved in 20XX.

On XX May 20XX You received Council's Substantial Commencement letter, although the physical works had already commenced several months beforehand.

The market value of the land just prior to the subdivision was $X! million.

You took on the role of overall project management, but engaged the services of a landscape architect, a surveyor and a consultant to oversee the various activities.

You incurred costs related to the subdivision and sale of the Lots of $X.

Title Lodgement Fees and Conveyancing fees have not yet been determined.

You funded the subdivision costs through your existing loan.

Development activities are nearing completion. Upon completion titles for the three new Lots will be issued in the names of Person A and Person B.

The subdivided Lots will have the following land areas:

Lot 1 - XX ha

Lot 2 - XX ha

Lot 3 - XX ha

The Lots have been advertised for sale with a local Real Estate Agent. They were advertised on approximately XX January 20XX.

The asking price for each block was $X.

On X February 20XX You accepted an offer to sell Lot 1.

You have recently accepted an offer to sell Lot 2.

Lot 3 has not yet been sold.

You have not undertaken any subdivision activities or any business of land development in the past.

You do not have any planes to undertake subdivision activities or any business land development in the future.

Your land as a whole has not been on the market for sale.

You are not registered for GST.

Assumptions

The sale of Lot 3 will occur during the period of this ruling.

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