Edited version of private advice

Authorisation Number: 1052236269360

Date of advice: 27 March 2024

Ruling

Subject: Subdivision - capital or revenue

Question 1

Will the proceeds from the sale of the subdivided lots be assessable as ordinary income under 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Having regard to your circumstances and the factors outlined in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production and Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income we do not consider that you are carrying on a business or the sale has the characteristics of an isolated profit-making transaction when you dispose of the land. You do not satisfy majority of the key criteria listed in TR 97/11 and TR 92/3.

Question 2

Will the sale of subdivided lots be considered the mere realisation of a capital gains tax (CGT) asset and be reportable under section 104-10 of the ITAA 1997?

Answer

Yes.

As explained above, as we consider that the transaction is not in the course of carrying on a business or an isolated profit-making transaction, the sale will be a mere realisation of a capital asset. Provided that there have not been any major capital improvements to the asset, you will be entitled to disregard any capital gains made on the sale of the subdivided lots as they are pre-CGT assets.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased a half share in a property prior to 1985.

You and your spouse then purchased the other half share of the property prior to 1985.

You and your spouse farmed the property until a specified date. You and your spouse then separated, and they left the property.

You remained on the property with the children.

You provided the year that the property settlement was finalised. Your spouse's share of the property was all transferred to you as a part of the property settlement.

The marriage breakdown rollover applied to this transaction.

You continued to farm the property and took on employment to meet mortgage obligations.

In recent years, the surrounding properties have been developed into smaller residential lots as part of the urban sprawl.

To help transition into and fund retirement, you previously subdivided the land into specified number of lots.

The subdivided lots were sold by a local real estate agency.

You retained Lot A (vacant apart from some fruit trees) and Lot B (contained your main residence and some sheds) to live in your main residence and to grow crops on a small scale.

You made the decision to relocate your main residence from Lot B to Lot A as your main residence and sheds were in need of repairs and people were helping themselves to the fruit trees.

You provided the year you constructed your new main residence on Lot A and the year that you moved into your new main residence.

You provide details on when you engaged the same property developers to subdivide Lot B into a specified number of lots.

You provided us with details on when the majority of the vegetation was cleared and when your previous main residence was demolished.

To complete the sub-division the property developers will engage contractors to complete the water, sewer, electrical, telecommunications work and install survey pegs. The property developers will also obtain the final council approval for the title of the lots.

You have retired from paid employment and rely on your superannuation to meet everyday expenses including the mortgage repayments on your new main residence.

With the recent interest rate increases your super has almost been exhausted therefore you are looking at selling the lots soon.

You provided the address of the lot to be subdivided.

You will not build anything on the land or perform any works beyond the minimum amount necessary to satisfy the development approval conditions.

You have no formal business plan.

You have no business organisation for the subdivision. There is no office, no secretary and no letterhead in relation to the subdivision activities.

You will use the funds from the initial subdivision to finance the further subdivision activities and meet interest obligations.

You intend to borrow from family if the funds from the previous subdivision does not cover all the expenses.

You intend to advertise the subdivided lots for sale through local real estate agents.

You provided a price range that you expect the subdivided lots to be sold for.

You provided details on the number of stages the lots will be sold in, and how many lots will be sold in each stage.

You have not claimed any expenses in relation to the subdivision.

You do not own any other land that you intend to subdivide.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 104-10 (5)

Income Tax Assessment Act 1997 section 995-1