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Edited version of private advice
Authorisation Number: 5010073888407
Date of advice: 18 June 2021
Ruling
Subject: Income tax - capital gains tax - revenue vs capital
Question
Are there capital gains tax consequences when you demolish an existing property that is your main residence, construct a duplex,and sell one of the duplexes?
Answer
Yes
Based on the information provided, the proceeds from the sale of the subdivided lot will not be ordinary income and not assessable under section 6-5 of the ITAA 1997 as either:
• the carrying on of a business in accordance with the factors listed in Taxation Ruling 97/11; or
• a profit-making or commercial transaction in accordance with Taxation Ruling TR 92/3.
Any proceeds received on the disposal of the subdivided lot will represent a mere realisation of a capital asset which will be assessed under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.
This ruling applies for the following period:
Financial year ending 30 June 2021
Financial year ending 30 June 2022
The scheme commences on:
1 July 2020
Relevant facts and circumstances
You lived in an older property on a block of land large enough to be subdivided. You purchased the property after 20 September 1985. It was intended to be your principal place of residence. No income has been derived from this property from purchase. Only recently you decided to demolish and build duplexes to help with the mortgage.
You work in a managerial role and have not worked in the building industry for many years.
Your aim is to live in a more modern dwelling, which is only possible by building two dwellings and selling one of them. The old property demolition and new duplex construction has been achieved by liaising with an architect, who has then contacted builders and other industry professionals to facilitate this arrangement. The professionals are all paid a fixed price for the build, and you will not be onsite during the building process, temporarily living with extended family until completion.
The contract is one where a licensed builder has been contracted to perform the work with no further involvement required by you. Construction has commenced. This property was your main residence and you have no other property to your name.
You expect to make a gain from the sale of the duplex.
You are not registered for GST.