Edited version of private advice

Authorisation Number: 1051998209141

Date of advice: 24 June 2022

Ruling

Subject: CGT - subdivision

Question 1

Will the proceeds received from the sale of the vacant subdivided lot 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 lot be assessable as statutory income, on capital account as the mere realisation of an asset, 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 periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You purchased a parcel of land which was used as your main residence and to keep horses.

You acquired an interest only loan to purchase the land. You have utilised the redraw facility on the loan to aid paying the subdivision fees.

You started a process of seeing if it was possible to subdivide the property. It was hoped that some of your children would be interested in acquiring a block. Due to delays, the children bought elsewhere before the subdivision could be completed.

Another reason for subdividing is that the bank communicated that as you were getting older the loan needed to be addressed.

You arranged a pre-planning meeting with the Council. You received approval for X lots with each one to be activated when required.

One block has been subdivided and sold to a third party.

The sale of the block was to help clear debt. You do not intend to subdivide any further blocks once your debts are cleared as you intend to keep as much land as you can for your horses to use.

The only works undertaken on the land were to meet council requirements.

You have not undertaken any subdivision activities in the past.

You initiated the subdivision of the land and a development company hasn't been used.

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