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Edited version of private advice
Authorisation Number: 1052075522848
Date of advice: 9 March 2023
Ruling
Subject: CGT - sale of property
Question 1
Will the proceeds received from the sale of the property 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 1
No.
Question 2
Will the proceeds received from the sale of the property 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 2
Yes.
Based on the information provided, the proceeds from the sale of the property will not be ordinary income and not assessable under section 6-5 of the ITAA 1997as a result of either:
• the carrying on of a business in accordance with the factors listed in Taxation Ruling TR 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 property will represent a mere realisation of a capital asset 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 20XX.
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
Spouse 1 and Spouse 2 (you) own a number of rental properties.
You decided it was time to add to your investment portfolio.
You purchased a house and land package (HP1).
You hired a real estate agent to lease HP1 after construction of the house was completed.
HP1 was leased for 12 months.
You purchased house and land package 2 (HP2).
Shortly after the purchase of HP2 Spouse 2 lost their job. Spouse 2 found a new job. However, this drastically reduced your disposable income.
HP2 remained vacant.
A few months after HP1 was tenanted the property was significantly damaged by the tenant and the tenant refused to pay rent.
Spouse 1 was diagnosed with an ongoing medical condition.
You decided to sell HP2 in order to pay for the damage done to HP1 and to decrease your other financial obligations.
A few months after the house on HP2 was completed, settlement occurred on your sale of HP2.
You lodged an application with an Administrative Tribunal (AT) for malicious damage of the HP1.
AT ordered that the tenant vacate the rented premises and a warrant of possession was issued.
You have no affiliated trusts or companies.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 104-10