Edited version of private advice

Authorisation Number: 1052219457228

Date of advice: 6 February 2024

Ruling

Subject: Sale of property - capital vs revenue

Question 1

Will the sale of your property prior to 30 June 20XX, give rise to an amount being assessable income as a profit on an isolated transaction pursuant to either section 6-5 or section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No.

Question 2

If not, will the sale of your property give rise to an amount being assessable income on another basis other than under the capital gains provisions?

Answer 2

No.

Based on the information provided, the proceeds from the sale of your property will not be ordinary income and not assessable under section 6-5 or section 15-15 of the ITAA 1997. Any proceeds received on the disposal of your property will represent a mere realisation of a capital asset and will be assessed under the capital gains provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You were previously acting as a sole trader, consulting on a XXXX project.

You were previously registered for GST.

From XX XX 19XX, you have resided at the stated residential address.

On XX XX 20XX, you purchased the neighbouring property (the Property).

The Property was rented shortly after acquisition, until the conclusion of the final lease.

On XX XX 20XX, the final lease on the Property ended.

The rental income received at the end of the final lease was $XX per week.

There were brief periods of vacancy between tenants.

The original dwelling on the Property required increasing amounts of repairs and maintenance.

The original dwelling on the Property had large quantities of asbestos in it, including in the roof, ceiling, and most internal walls.

The increasing costs of repairs and maintenance, along with safety concerns led you to a decision to demolish the original dwelling on the Property.

In addition to the existing loan on the Property from the original purchase in 20XX, you required two further bank loans to complete the house build.

On XX XX 20XX, you secured an Investment Home Loan with a bank (the Bank).

On XX XX 20XX, you engaged a builder to construct a new dwelling on the Property.

In XX 20XX, the original dwelling on the Property was demolished.

The delay between the end of the final lease and the demolishing of the dwelling was due to delays in seeking Council approvals.

On XX XX 20XX, you secured the second loan with the Bank.

The second loan was to enable you to make alterations and additions to a dwelling that is not owner occupied.

On XX XX 20XX, you acquired a rental appraisal from a real estate agency, to settle an appropriate rent amount on completion of the new build.

The real estate agent gave a rental appraisal range of $XX to $XX per week.

The Property is not currently rented as finishing items are still to be installed (including the front fence, landscaping and installation of a clothesline and letter box).

You have not subdivided the land.

You are now considering selling the Property.

You were XX years of age when the decision was made to build a new dwelling on the Property.

You did not expect the design, approvals, and construction process to have a duration of over X years.

Your personal circumstances have now changed.

You are preparing for retirement, and you are actively scanning the housing market for your retirement home.

To purchase a property that will be your retirement home, you will need to sell an asset.

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