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Edited version of private advice
Authorisation Number: 1052190793625
Date of advice: 17 November 2023
Ruling
Subject: Subdivision of land - carrying on business
Question
Is any profit from your property development activities assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. When considered against the relevant case law indicia and TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) your activities are considered to be those of a property development business. Your developed properties were sold as trading stock. Sale proceeds will be assessable under section 6-5 of the ITAA 1997.
In your circumstances, you purchased the property with the intention to subdivide the land with the intention to make a profit. The development was subdivided into a specified number of lots. The development was subdivided into a specified number of lots. You sold some lots, rented one and retained the other one. Of the lots that you sold you made a profit and you provided us with this figure. You carried a level of risk for the development by taking out loans for the development. You managed the development project by engaging the relevant trades required to complete the development project. The activity is carried on in a similar manner to that someone who is in the business of property development.
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You have been a property investor for a specified number of years.
You purchased a property located at Address A on a specified date.
The Self-Managed Super Fund (SMSF), a related entity, purchased Address B on a specified date.
When the properties were purchased, your intention was to subdivide with the intention of making a profit.
The block of land that was owned by the SMSF, was partly merged with another land parcel that you intended to subdivide. The SMSF was supposed to get back some land at the rear of its property, but as the land was registered in joint names (when it was subdivided), it is currently unable be portioned back to the SMSF.
Council C approved the development on a specified date for a subdivision of a specified number of lots.
The development was financed by a loan.
The development project subdivided the properties into a specified number of lots. You sold some of the lots. You retained one lot for yourself and rented out the remaining lot.
One of the lots you own jointly with the SMSF. The intention is for this lot to be transferred to the SMSF so that they own the entire lot.
You earned profit from the sale of the development lots and you provided us with the figures.
You are now commencing a new property development.
You have lodged Business Activity Statements as a developer and remitted Goods and Services Tax (GST) based on Margin Scheme Calculations.
You reported the income from the sale of the lots on revenue account in your income tax return lodgements.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 15-15
Income Tax Assessment Act 1997 part 3-1
Income Tax Assessment Act 1997 part 3-3