Private ruling: Land subdivision
Date of advice: 17 April 2026
Published: 6 July 2026
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Taxpayer be eligible for CGT rollover relief under Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the compulsory acquisition of their land (Property 1) by the local council and the subsequent purchase Property 2? | A1: Yes. | Q2: Will the profit or gain made on the disposal of the 2 newly created lots be treated as ordinary income under section 6-5 of the ITAA 1997? | A2: Yes. | Q3: Is the sale of lots derived from the subdivision of Property 2 a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore subject to GST? | A3: Yes.

Relevant facts and circumstances: On 25 November 20XX, you purchased the vacant land (Property 1). Your intention was to build a house on Property 1 and rent it out for investment purposes. You had to obtain formal development approval for the house prior to seeking building approval. The development approval was issued on 25 July 20XX. The vacant land was compulsorily acquired by the local council on 6 December 20XX for a specified amount. On 21 January 20XX, you purchased the vacant land (Property 2), you provided us with the purchase amount. Your intention was to build a house on Property 2 and rent it out for investment purposes. After purchasing Property 2, you become aware that there is a potential for development. You decided to lodge a development application to subdivide Property 2 into three lots (being Properties 2A, 2B and 2C). The development approval was issued on 19 September 20XX. Your intention is to complete the subdivision and sell 2 of the lots (Properties 2A and 2B), you provided us with details on how much you expect to sell the lots for. Your plan is to retain Property 2C and build a house to rent out for investment purposes. You are planning to borrow additional funds from your home loan provider. You will increase your debt on your main residence by borrowing to fund all the development costs of the rental property. The profit from the sale of the 2 new lots is likely to only repay part of the loan you currently have for the main residence and the additional funds borrowed to complete the subdivision. You have previously been involved in development activity where you subdivided another property and sold two of the four lots created through the subdivision. In the private ruling that was issued in January 20XX you stated as a fact that you would not repeat the activity of subdividing of land.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 section 112-25 | Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 section 124-75 | Income Tax Assessment Act 1997 section 124-85 | Income Tax Assessment Act 1997 subsection 995-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 23-15

Reasons for decision: Summary: Yes. The Taxpayer will be eligible for CGT rollover as the relevant conditions contained in Subdivision 124-B of the ITAA 1997 are satisfied. | Detailed Reasoning - Detailed reasoning: Subdivision 124-B of the ITAA 1997 explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost, or destroyed. If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another capital gains tax asset. Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement asset rollover if a Capital Gains Tax (CGT) asset owned by the entity is compulsorily acquired by an Australian government agency. Subsection 995-1(1) of the ITAA 1997 defines an Australian government agency as a Commonwealth, a State or a Territory, or an authority of Commonwealth or of a State or Territory. A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for a rollover (subsection 124-70(2) of the ITAA 1997). Should the owner of the original asset receive money, section 124-75 of the ITAA 1997 then provides further requirements which must be satisfied if only money is received for the event happening. If a taxpayer receives money as a result of the compulsory acquisition of their asset they must satisfy the requirements in section 124-75 of the ITAA 1997 for roll-over to be available. Subsection 124-75(2) of the ITAA 1997 requires that the taxpayer incur expenditure in acquiring another CGT asset. Meaning of 'incur' Taxation Determination TD 2000/39 Income tax: capital gains: what does the word 'incur' in subsection 124-75(2) of the Income Tax Assessment Act 1997 mean? (TD 2000/39) explains the meaning of word 'incur' in the context of subsection 124-75(2) of the ITAA 1997 by stating that you incur expenditure in acquiring another CGT asset if you: (a) outlay expenditure; or (b) have definitively committed yourself, or have completely subjected yourself, to a presently existing liability to outlay the expenditure. Moreover, the word 'incur' has the same meaning in subsection 124-75(2) as it has in its context in the general deduction provision in subsection 8-1(1) of the ITAA 1997. Where the original asset was not in any way connected to a business being carried on by the taxpayer, the replacement asset must be used (for a reasonable period after it is acquired) for the same purpose, or for a similar purpose, to the purpose for which the original asset was used just before the event happened (subsection 124-75(4) of the ITAA 1997). Paragraph 124-75(3)(b) of the ITAA 1997 requires the entity to incur at least some of the expenditure in acquiring this replacement CGT asset no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens. Meaning of 'use the other asset... for the same purpose... or for a similar purpose' Taxation Determination TD 2000/42 Income tax: capital gains: what is the scope of the words 'use the other asset... for the same purpose... or for a similar purpose' in subsection 124-75(4) of the Income Tax Assessment Act 1997 in relation to a replacement asset? (TD 2000/42) provides some guidance as to the scope of the words 'use the other asset... for the same purpose... or for a similar purpose' in subsection 124-75(4) of the ITAA 1997. The Determination states that whether an asset is used for the same or a similar purpose as another asset is a question of fact and degree (paragraph 2 of TD 2000/42). Section 124-85 of the ITAA 1997 provides the consequences if you receive money and choose to obtain a roll-over. If the money received does not exceed the expenditure to acquire another CGT asset or to repair or restore the original asset; the gain is disregarded. Meaning of 'substantially the same' asset as original asset Taxation Determination TD 2000/45 Income tax: capital gains: in what circumstances is it reasonable to treat one CGT asset as 'substantially the same' as another CGT asset for the purposes of paragraphs 124-85(3)(b) and 124-95(6)(b) of the Income Tax Assessment Act 1997? (TD 2000/45) explains what indicators should be taken under consideration to confirm that the replacement asset is 'substantially the same' as another CGT asset for the purposes of paragraphs 124-85(3)(b) and 124-95(6)(b) of the ITAA 1997. In accordance with paragraph 2 of TD 2000/45: Whether it is reasonable to treat a CGT asset as substantially the same as another is an objective question and the answer depends on the facts of each particular case. Consideration needs to be given to such matters as the nature of the replacement asset, the use to which it is put, its cost, location, size, value, quality and composition, compared with those attributes of the original asset. Application of the above presented conditions to your circumstances is discussed below. | Detailed Reasoning - Application to your circumstances: Property 1 was compulsory acquired by the local council. The local council is an Australian government agency within the meaning contained in subsection 995-1(1) of the ITAA 1997. You received money in relation to the compulsory acquisition and incurred expenditure in relation to the acquisition of Property 2. The expenditure in relation to the acquisition of Property 2 was incurred no later than one year after the compulsory acquisition of Property 1 by the Australian government agency. Property 2, acquired by you after the compulsory acquisition of Property 1 is considered to be 'substantially the same asset as original asset' for the purposes of Subdivision 124-B of the ITAA 1997 considering the nature of the replacement asset, the use to which it is put, its cost, location, size, value, quality and composition, compared with those attributes of the original asset - Property 1. Moreover, Property 1 was not used for any purpose immediately before the compulsory acquisition. The requirement in subsection 124-75(4) of the ITAA 1997 is therefore satisfied because you used the money to acquire another vacant block of land - Property 2. Any potential use to which the land could be put, or the intended use of the land is not relevant. As the proceeds received from the disposal of Property 1 do not exceed the expenditure to acquire Property 2, the gain from the disposal of Property 1 is disregarded. The conditions of the rollover under subdivision 124-B of ITAA 1997 in respect of the compulsory acquisition of Property 1 by the local council and the subsequent acquisition of Property 2 are satisfied. Accordingly, your expenditure incurred in relation to the acquisition of Property 2 forms part of the cost base of this asset in accordance with section 110-25 of the ITAA 1997. | Detailed Reasoning - Question 2: Will the profit or gain made on the disposal of the 2 newly created lots be treated as ordinary income under section 6-5 of the ITAA 1997? | Summary: Yes. The profit on the disposal of the 2 newly created lots be treated as ordinary income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Expenses incurred in relation to the new blocks of land: Usually, if you decide to subdivide a block of land into 3 separate blocks, each of those blocks is a new asset. In accordance with the example contained in section 112-25 of the ITAA 1997, you work out the cost base and reduced cos base of each new asset as follows: | Detailed Reasoning - Method statement: Step 1. Work out each element of the * cost base and * reduced cost base of the original asset at the time of splitting the original asset into 2 or more assets Step 2. Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset's cost base and reduced cost base. However, if the profit or gain made on the disposal of 2 vacant lots is to be treated as ordinary income under section 6-5 of ITAA 1997, the Commissioner accepts any basis of attribution of the cost base which is appropriate in the circumstances - for example, on the basis of area or relative market value. It is however essential that the taxpayer is able to produce evidence to support an apportionment. | Detailed Reasoning - Moreover, any cost solely related to one block should be attributed solely to that block.: In Case 6/2015, the taxpayer argued that certain costs relevant to a partial disposal of land should be deducted from the sale proceeds. These costs included the cost of the land itself and associated costs such as legal fees, planning fees and finance broker fees. There was however some doubt as to whether the costs claimed were " reasonably attributable " to the acquisition of the land in question, not least because the taxpayer ' s records indicated that almost identical amounts had already been claimed as part of the cost base of two other part disposals of adjacent land in an earlier year. Accordingly, the Administrative Appeals Tribunal (AAT) found that the costs should not be allowed as part of the cost base for the land. This view is confirmed to some extent by example 2 contained in Taxation Determination TD 97/3 Income tax: capital gains: if a parcel of land acquired after 19 September 1985 is subdivided into lots ('blocks'), do Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 treat a disposal of a block of the subdivided land as the disposal of part of an asset (the original land parcel) or the disposal of an asset in its own right (the subdivided block)? (TD 97/3), which states as follows: | Detailed Reasoning - survey fees; legal fees; subdivision application fees; and cost of connecting electricity and water only to the subdivided block to be sold.: John includes all of these costs in the relevant cost base of the block to be sold. We consider that this is not a reasonable apportionment. It is reasonable to apportion the survey, legal and subdivision application fees over both blocks. If the blocks are of unequal market value, an apportionment of costs in proportion to the market value of the blocks would usually be a reasonable apportionment. As the cost of connecting the electricity and water relates only to the block to be sold, it would be reasonable to attribute this cost solely to the cost base of this block. A reasonable apportionment of the cost of the land itself can usually be achieved on an area basis if all the land is of similar market value or on a relative market value basis if this is not the case. Section 118-20 of the ITAA 1997 contains anti-overlap provisions which operate to reduce any capital gains by any amounts which are included in your assessable income under a provision of the ITAA 1997 outside of Part 3-1 of that Act as a result of the sale of the property. Subsection 118-20(1)(a) of the ITAA 1997 will operate in relation to profits from land/property developments where an isolated transaction is found as follows: A capital gain you make from a CGT event is reduced if, because of the event, a provision of this Act (outside of this Part) includes an amount (for any income year) in: | Detailed Reasoning - b) if you are a partner in a partnership, the assessable income or exempt income of the partnership.: Therefore, while CGT event A1 will occur when an asset is sold, any capital gain will be reduced by the amount included as ordinary assessable income under section 6-5 of the ITAA 1997. As a result, if the profit or gain made on the disposal of 2 newly created blocks of land should be treated as ordinary income under section 6-5 of ITAA 1997 following business activities or isolated transaction, the expenses incurred by you in relation to subdivision of the land should be accordingly apportioned. Consequently, only the part of these expenses incurred in relation to the retained block of land should be included in the cost base of this part of the land in accordance with section 110-25 of the ITAA 1997. The rest of the expenses incurred, including acquisition costs of the lots that are to be sold, should be included in the cost bases of 2 newly created lots, which are considered as separate CGT assets after the subdivision in accordance with section 110-25 of the ITAA 1997. CGT event A1 will occur on the disposal of your ownership interests in each of the subdivided lots. The capital gain for the event is worked out by comparing the cost base of your ownership interests in the asset with the capital proceeds for its disposal. In addition, any capital gain made on the sale of the subdivided lots will be reduced to the extent that the profit from the sale is included in your assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - The ways of treating the proceeds from a property development can be treated for taxation purposes are discussed below.: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Section 6-10 of the ITAA 1997 states your assessable income also includes some amounts that are not ordinary income, which is assessable as statutory income. | Detailed Reasoning - Carrying on a business: Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) provides the Commissioner's view on whether a taxpayer is carrying on a business. Although TR 97/11 deals with the issues in determining whether a taxpayer is carrying on a business of primary production, the same principles can be applied to the question of whether a taxpayer is carrying on any type of business including property subdivision and development. | Detailed Reasoning - (c) whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;: (d) whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit; the size, scale and permanency of the activity; and | Detailed Reasoning - (e) whether the activity is better described as a hobby, a form of recreation or a sporting activity.: Whether a business is being carried on depends on the impression gained from looking at all the indicators against the case facts and whether these indicators provide the operations with a commercial flavour. | Detailed Reasoning - Isolated commercial transactions: Taxation Ruling TR 92/3: Income tax: whether profits on isolated transactions are income ( TR 92/3) provides guidance in determining whether profits from isolated transactions are ordinary income and therefore assessable under section 6-5 of the ITAA 1997. | Detailed Reasoning - • those transactions entered into by non-business taxpayers.: • Whether a profit from an isolated transaction is ordinary income is a question of fact and depends very much on the individual circumstances of the case. | Detailed Reasoning - • the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain; and: • the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. Paragraph 13 of TR 92/3 outlines the following factors which may be relevant when considering whether an isolated transaction amounts to a business operation or commercial transaction: | Detailed Reasoning - • the timing of the transaction or the various steps in the transaction.: TR 92/3 makes it clear at paragraph 42 that even if a taxpayer did not originally acquire a property with a profit-making intention, the profit made on its eventual sale will be income if the taxpayer later ventured the property into a profit-making commercial transaction: 42. For example, if a taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to venture or commit the asset either: | Detailed Reasoning - (b) into a profit-making undertaking or scheme with the characteristics of a business operation or commercial transaction,: the activity of the taxpayer constitutes the carrying on of a business or a business operation or commercial transaction carrying out a profit-making scheme, as the case may be. The profit from the activity is income although the taxpayer did not have the purpose of profit-making at the time of acquiring the asset. If a property is entered into a property development sometime after it was acquired, it is the taxpayer's intention at the time the property is committed to the development that must be considered. In considering the taxpayer's intention, TR 92/3 states that it is not the subjective intention or purpose of the taxpayer that is relevant. Rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. TR 92/3 also states that it is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. Rather, a taxpayer may have multiple intentions or purposes and all that is required is that sale for a profit be 'a not insignificant' intention or purpose ( McCarthy v. FC of T [2021] AATA 1511 (McCarthy) and McCurry v. FV of T (1998) 39 ATR 121; 98 ATC 4487 (McCurry) ). In McCarthy , the taxpayers demolished the dwelling on a property, subdivided it and then sold the two vacant lots for a profit. The taxpayers argued that the development was of such a small scale it was not a commercial transaction. However, the Tribunal held that it was the sort of transaction that a person in business might undertake and therefore it was a commercial transaction. The taxpayers in McCarthy also argued that their original intention had been to hold the property as a rental investment to generate income but due to financial reasons they had to change their plan to hold the property long-term. The Tribunal stated that a taxpayer's stated intention must be considered in light of all the evidence and what eventually transpired. It also stated that a profit-making purpose does not have to be the sole or even the predominant purpose for entering into a transaction; it just has to be a not insignificant purpose. The Tribunal concluded that even if the taxpayer originally had another purpose for entering into the transaction, the possible subdivision and sale of the property was also a live option that the taxpayers considered at the time. Therefore, the Tribunal found that the profit made on the sale of the two subdivided lots was assessable as ordinary income under section 6-5 of the ITAA 1997. In McCurry , the taxpayers purchased a property, demolished the existing dwelling on it, and built three townhouses which were placed on the market a year after construction was completed. The taxpayers claimed that their original intention had been to construct townhouses to rent out and that they were only sold because of the financial difficulties they were encountering. | Detailed Reasoning - • A taxpayer may have more than one intention or purpose in mind when entering into a property development.: • When considering intention, the court is entitled to have regard not only to the taxpayer's stated intention but also the surrounding facts and to the events which actually occurred, as those events, by hindsight, can throw light on the considerations the taxpayer had at the time the transaction was entered into. The court stated: 'That which a person does is a guide to that which he had in mind to do'. • Although the taxpayers may originally have had the intention to rent out the townhouses on completion, having regard to all the facts and events that occurred, it was considered that they also had in mind the possibility of selling the developed property at a profit. | Detailed Reasoning - Mere realisation: Where the sale of land is a 'mere realisation', rather than sold in the course of carrying on a business or an isolated profit-making transaction, the sale is on capital account and CGT rules will generally apply. These proceeds are not ordinary income. As stated in paragraph 36 of TR 92/3, the courts have often said that the profit on the mere realisation of an investment will not be income, even where the taxpayer goes about the realisation in an enterprising way. However, where the original asset is transformed, this goes beyond a mere realisation of an investment. The extent of the transformation will be relevant when determining whether the undertaking is profit making in nature. In Whitfords Beach Pty Ltd v. Federal Commissioner of Taxation 79 ATC 4648; (1979) 44 FLR 312 , Justice Deane's judgement which was approved on appeal by the Full High Court stated: Thus a goldsmith who sells in his shop his patrimony of a single gold bar does not necessarily receive the proceeds of sale as income merely because he takes advantage of his shop to sell his capital asset more advantageously. On the other hand, the master goldsmith who labours to turn such a gold bar into finely wrought brooches which he displays and sells with his other gold wares, could not be said to receive the whole of the proceeds of sale of those particular brooches as capital merely because the gold from which they had been fashioned had not been acquired by him for the purposes of his business but had been received as a gift from his father. The paragraph above indicates that where the original asset acquired has been transformed so that it no longer retains its original character, the disposal of that asset will go beyond a mere realisation. | Detailed Reasoning - Capital Gains Tax: Profits from the sale of property may be treated as statutory income under the CGT provisions contained in Part 3-1 of the ITAA 1997 as a mere realisation of a capital asset. Section 102-20 of the ITAA 1997 states that a capital gain or capital loss is made only if a CGT event happens. Most CGT events happen in respect of a CGT asset. Real estate property is a CGT asset (section 108-5 of the ITAA 1997). CGT event A1 happens if you dispose of a CGT asset. If profit from the sale of property gives rise to both ordinary income and a capital gain, section 118-20 of the ITAA 1997 will apply to reduce the capital gain to the extent that the profit from the sale of the property is otherwise included as assessable income under section 6-5 of the ITAA 1997. Application of the above presented criteria to your circumstances is discussed below. | Detailed Reasoning - Application to your circumstances: Given the facts in your case, especially the 'one-off' nature of the activity and its relatively modest scale, the Commissioner does not consider you were carrying on a business of property development. However, the profit will still be assessed as ordinary income under section 6-5 of the ITAA 1997 if it resulted from an isolated commercial transaction which was entered into with a view to making a profit. When you acquired Property 2, conducted research and made enquiries, you recognised there was potential to subdividing the land and making a profit. Your actions demonstrate the motive to undertake the activity is to make a profit from the land subdivision activity rather than an intention to carry on a business. It is likely that you will make a profit from the activity that will be contributed towards constructing a dwelling on your portion of the remaining land in the future. Although your property development is not large in scale, it is comparable to those in McCarthy and McCurry which were held to be commercial transactions as although they were not large or complex, they were of a sort that a person in business might undertake. Similarly, it is considered that your property development subdivision of the land and development of the rental property, is also a transaction that a businessperson might undertake. Consequently, your property development is a commercial transaction. As your property development has been determined to be a commercial transaction, it will be assessable as ordinary income if you had a profit-making intention at the time of the transaction. The relevant time to consider your intention is when the commercial transaction commenced, that is, when you committed the property to the development. As discussed previously, it is not the subjective intention or purpose of the taxpayer that is relevant; rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. Also, it is not necessary for profit-making to be the sole or dominant intention or purpose for entering into the transaction. Rather, as stated in McCarthy and McCurry , a taxpayer may have multiple intentions or purposes and all that is required is that sale for a profit be 'a not insignificant' intention or purpose. That is, it is sufficient that the taxpayer had in mind the 'live option' of selling for a profit when they commenced the development. Your private ruling application stated that your original intention for undertaking the development was to purchase a block of land to build a house on the land and rent it out for investment purposes. Then you realised that the block of land has a development potential, so you decided to lodge a development application to subdivide the property into three lots. Now your intention is to complete the subdivision and sell two of the lots, retaining the third in which to build a house to rent out for investment purposes. | Detailed Reasoning - Borrowings: You are planning to incur borrowings to undertake the development by borrowing additional funds from your home loan provider. This was a factor taken into account by the Federal Court in McCurry to conclude that, contrary to the claims made by the taxpayers, they would have had in mind the possibility of selling the developed property at a profit when entering into the development. The Federal Court stated: The project did not represent an investment of surplus funds and it was likely that, at some stage, the property would have to be sold to repay to the Bank the moneys borrowed. Similarly, in your case, the development did not represent an investment of surplus funds. Rather, you will increase your debt on your main residence by borrowing to fund all the development costs of the rental property as the profit from the sale of the 2 new lots is likely to only repay part of the loan you currently have for the main residence and the additional funds borrowed to complete the subdivision. | Detailed Reasoning - Conclusion: As discussed previously, it is not the subjective intention of the taxpayer that is relevant but rather their intention as discerned from an objective consideration of the facts and circumstances of the case. Also, as stated in McCurry and McCarthy , what actually eventuated sheds light on the taxpayer's intention on commencement of the development. Having regard to all the objective facts and circumstances, including the events that transpired, we consider that, when you committed the property into the development, you had at least a 'not insignificant' purpose of selling 2 vacant lots in the short term. You may also have had other purposes. That is, you may have undertaken the development with dual purposes of holding the property long term but also selling it short term if you thought it was appropriate at the time. In any case, selling in the short term was at least a 'not insignificant' purpose contemplated by you when you entered the property into the development. Consequently, your profit on the sale of Properties 2A and 2B is assessable as ordinary income under section 6-5 of the ITAA 1997. That is, the sale of these Properties is an isolated profit-making transaction rather than the mere realisation of an asset. Section 118-20 of the ITAA 1997 will apply to prevent any double taxation by reducing the capital gain made on the sale of the lots by the amount assessed as ordinary income. | Detailed Reasoning - Question 3: Is the sale of lots derived from the subdivision of Property 2, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore subject to GST? | Summary: As you satisfy all the requirements of section 9-5, the sales of Properties 2A and 2B are a taxable supply and will be subject to GST. | Detailed Reasoning - Detailed reasoning: Section 9-5 provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with the indirect tax zone; and (d) you are registered, or required to be registered, for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, your supply of the lots derived from the subdivision of Property 2 (Properties 2A and 2B) is for consideration and is connected with the indirect tax zone, as the land is located in Australia. Therefore, you and satisfy paragraphs 9-5(a) and 9-5(c). Further, the GST-free and input tax provisions do not apply in your circumstances. However, it is necessary to determine whether the sale of Properties 2A and 2B are made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)) and if you are required to be registered for GST (paragraph 9-5(d)). Enterprise Subsection 9-20(1) provides that an enterprise relevantly includes: An activity, or series of activities, done: • in the form of a business; or • in the form of an adventure or concern in the nature of trade Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian business number (MT 2006/1) contains the Commissioner's view on what constitutes an enterprise for the purpose of eligibility for an Australian Business Number. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. • A business encompasses trade engaged in on a regular basis. • An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. In the form of a business Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? lists indicators of carrying on a business: • a significant commercial activity; • a purpose and intention of the taxpayer to engage in commercial activity; • an intention to make a profit from the activity; • the activity is or will be profitable; • the recurrent or regular nature of the activity; • the activity is carried on in a similar manner to that of other businesses in the same or similar trade; • activity is systematic, organised and carried on in a businesslike manner and records are kept; • the activities are of a reasonable size and scale; • a business plan exists; • commercial sales of product; and • the entity has relevant knowledge or skill. Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators. Given your facts, we consider that you are not carrying on an enterprise in the form of a business because your activities, by themselves, are not a commercial activity nor was your intention to undertake a commercial activity but an investment activity of building a residence for lease. Next, we need to consider whether your activities are an activity in the form of an adventure or concern in the nature of trade. In the form of an adventure or concern in the nature of trade Paragraphs 243 to 257 of MT 2006/1 discuss the characteristics of trade, including the badges of trade as referred to in a number of judicial decisions. • The subject matter of the realisation; • Length of period of ownership; • Frequency or number of similar transactions • Supplementary work on or in connection with the property realised • Circumstances that were responsible for the realisation • Motive Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. In this case: • You purchased the property in January 20XX. • You received approval to subdivide the property in September 20XX. • You intend to sell two of the three subdivided lots. • You have previously subdivided land. Having regard to all the facts and circumstances of your case, the sale of Properties 2A and 2B is the sale of a trading asset of an adventure or concern in the nature of trade rather than the sale of a capital asset. Accordingly, the sale of Properties 2A and 2B are made in the course of furtherance of an enterprise that you carry on under section 9-20 and paragraph 9-5(b) is satisfied. GST registration Section 23-5 provides that you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). We determined above that the sale of the Properties 2A and 2B is made in the course or furtherance of an enterprise that you carry on. Accordingly, the proceeds from the sale are included in the calculation of your GST turnover threshold. You are expecting to receive $X for either Property 2A or Property 2B. Therefore, when either of these amounts are added to your annual turnover or projected annual turnover it will exceed the threshold, currently $75,000, and you will be required to register for GST if you are not already registered for GST. As you will be required to register for GST, paragraph 9-5(d) is satisfied.

Question 1: Will the Taxpayer be eligible for CGT rollover relief under Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the compulsory acquisition of their land by the local council and the subsequent purchase of another land?