Edited version of private advice

Authorisation Number: 1052225458075

Date of advice: 27 February 2024

Ruling

Subject: CGT profits on isolated transaction

Question

Are the proceeds from the sale of the property, assessable as statutory income, on capital account, as a mere realisation of a capital asset and subject to the capital gains tax (CGT) provisions in Part 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Though the intention had changed when the original house was renovated and sold as business income, and additional units constructed and sold as business income, the final unit was retained and rented out for a period. It was then sold due to changing family circumstances including retirement plans. The profits obtained from the sale of the final unit were on a smaller scale in comparison to others conducting similar activities in the industry and the trust has never previously undertaken any property development. Therefore, from an objective consideration of the facts and circumstances of the case, it is considered that the disposal of the final unit after a period of rental income arose from a mere realisation of capital asset and will be recorded as statutory income under section 6-10 of the ITAA 1997.

This ruling applies for the following period:

Income year ended 30 June 2023

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

The trust purchased the property because it has been in the beneficiary's family for a number of years and is regarded as the old family home. The view was to do the necessary renovations and bring the old family home back to its original condition and then rent the home on a long-term basis to keep the family connection to the property.

When the land around the old family home was cleared during renovations, it became obvious that there was room to construct additional units on the spare land. At this point you were under no illusions that the trust was looking at a profit-making scheme for the new units. However, the trust still planned to hold onto a stake in the property for sentimental family reasons.

The decision was made to sell the old family home to help finance the construction of the new units and keep one of the new units as the long-term rental as to keep a relationship with the property. The newly renovated old family home was sold and recorded as ordinary business income.

Additional units were constructed and two sold and reported as ordinary business income. The final unit was retained and rented out.

Several years later it was decided to sell the final unit due to changing family circumstances including your retirement process and downsizing your own home.

The trust has never previously been involved in property development. The trust does not conduct any other activities and will likely now wind up.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3