Edited version of private advice

Authorisation Number: 1052225179966

Date of advice: 22 February 2024

Ruling

Subject: Assessable income

Question 1

Is the sale of the two dwellings on capital account up until the relevant date?

Answer

Yes.

Based on the information provided to the Commissioner the sale of the dwellings will be on capital account up until the relevant date when you decided to change your plans and no longer rent the properties out under the National Rental Affordability Scheme.

On DD MM 20YY you decided that it was no longer viable for you to rent the properties out under the scheme, and you decided to sell them.

Question 2

Is the sale of the two dwellings on revenue account after the relevant date?

Answer

Yes.

Based on the information provided to the Commissioner the sale of the dwellings will be on revenue account after the relevant date when you decided not to rent the properties out through the scheme and decided to undertake a profit-making activity.

From the profit-making activities on the relevant date until the sale, will be ordinary income and considering the anti-overlap provisions in section 118-20 of the Income Tax Assessment Act 1997 where the capital gain is reduced by the amount included elsewhere under another provision, i.e., reduced by the ordinary income.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You purchased land.

Settlement took place a few years ago.

The property was paid for via cash savings.

At the time of acquisition, the property was vacant land.

When originally purchased it had the ability to build a number of new dwellings with potential for additional dwellings.

Your plan was to live in one of the properties and rent the additional dwellings.

The properties would be rented through the XXXXX Scheme.

You lodged a Development Application ("DA") for several dwellings, and it was approved a few months later.

The estimated development costs of the project at the time of the initial contract were for multiple properties.

XXX approved a loan early in the following year as a construction loan.

The builder issued a PPA invoice prior to the bank loan being approved which was requested to be paid prior to contracts being prepared. This was paid on shortly after the invoice was issued.

Building construction contracts were issued and signed in the same month that the invoice was paid.

The contract indicated that commencement of the build would occur within a set number of days and the build time would be a within a specific period.

The build states that the contracts were issued incorrectly and the contracts were to be redone. This was sent and signed the same day.

Final selection for the builds were offered and completed.

A request was made to assign the building contract to a partner builder.

Building permit was issued.

There were delays by the builders due to the pressure on the builder for projects to be completed due to federal and state based grants issued at that time.

In the following year the builder indicated that construction would commence towards the end of the year.

Several months after building was due to start the builder stated there were delays with timber and the delays would be for at least a couple of months.

The timber frame went up within the expected delay period.

The property was completed in the flowing year after building began.

The subdivision process was commenced when you contacted a surveyor.

Subdivision was completed when the titles were issued.

You contacted XXXs earlier in the year providing an update on the property and to call for further discussions regarding getting the property ready for rental.

You contacted a valuer who responded with a quote in relation to valuing the rental property for XXXX purposes.

They had advised to wait until the air-conditioning was completed to maximise the rental value for the properties.

Shortly after the relevant date you decided to sell the properties rather than proceed with renting them out.

The main driver for this decision was the loan which when taken out was a smaller percentage per annum and had doubled with the potential for further increases.

You had maxed out your borrowing capacity and this prevented you from refinancing the debt on your principal place of residence.

The contract with the real estate agent to sell the properties was entered shortly after you decided to sell the properties.

Most of the dwellings were sold and you moved into the remaining dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 118-120