Edited version of private advice

Authorisation Number: 1052167079536

Date of advice: 12 September 2023

Ruling

Subject: Subdivision of property

Question 1

Will the transfer of the subdivided property 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 transfer of the subdivided property will not be ordinary income and not assessable income under section 6-5 of the ITAA 1997 as 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 the principles contained in Taxation Ruling TR 92/3.

Question 2

Will the transfer of your property be a mere realisation of a capital asset and therefore subject to the capital gains tax provisions?

Answer

Yes. Based on the information you have provided to the Commissioner, the transfer of the property is the mere realisation of a capital asset and subject to capital gains tax pursuant to subsection 104-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) and assessable as statutory income under section 102-5 of the ITAA 1997.

Question 3

Was GST payable under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you, transferred the title of the property to your child?

Answer

No. GST was not payable under section 9-40 of the GST Act when you transferred the title of the property to your child. This is because the Commissioner considers you were not making a taxable supply pursuant to section 9-5 of the GST Act.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You own a property.

The Property was purchased by you and your late spouse as joint tenants before 1985.

The Property was purchased with the intention of it being your first family home to raise your children in.

The Property was originally included in Suburb A, however, was later changed to Suburb B by council.

The Property has never been used to produce assessable income under your ownership.

Following the death of your spouse (after 1985), their interest in the Property passed to you, and you became the sole owner of the Property.

You continued to live at the Property following your spouse's death.

The Property has never been available for sale, and you have no intention of selling the Property.

Company One was engaged for development services and in MM 20YY, provided a fee structure for surveying, town planning, subdivision, and architecture requirements.

In MM 20YY, planning for the new dwelling commenced.

In MM 20YY, your child moved in with you to assist with household tasks.

In MM 20YY, a planning permit was approved by Council A which included the following information: development of a double storey dwelling behind your existing dwelling at the Property.

Your child coordinated the build from start to finish.

Your child also funded the development.

In MM 20YY, a real estate agent notified you and advised of the estimated market value of the Property.

In MM 20YY, a building contract was prepared by Company Two to construct a new dwelling on the Property for a cost of $X.

In MM 20YY, a building permit was issued by Company Three.

In MM 20YY, construction on the second dwelling was completed. In MM 20YY, the certificate of occupancy was issued. In MM 20YY, your child and their child moved into the additional property.

The property had a land area of X square metres prior to the subdivision.

Company One coordinated the subdivision for a cost of $X.

Company Four undertook title searches, photocopying, postage, and phone calls and provided property certificates and verification of identity for a cost of $X.

In MM 20YY, the Property was subdivided into two lots, being Lot 1 and Lot 2.

You remained the owner of both subdivided lots.

In MM 20YY, the title of the additional property was transferred into your child's name.

You did not receive any cash or other consideration for the additional property.

Neither you, nor any related entities/parties, have undertaken any subdivision activity or land development in the past, and do not have any intentions to undertake any similar activities in the future.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 104-10