Private ruling: CGT - Sub-divisions - Disposal
Date of advice: 13 March 2026
Published: 29 June 2026
Ruling period: Year ending 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Will the proceeds of the sale of the sub-divided lot be a mere realisation of an asset and therefore be subject only to the capital gains tax provisions in the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Is the Trustee carrying on an enterprise of property development and as a result will the sale of the subdivided lot be a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A2: No. | Q3: Will any capital gain or capital loss the Trustee makes when the dwelling is distributed to the beneficiary be disregarded under subsection 128-15(3) of the ITAA 1997? | A3: Yes.

Relevant facts and circumstances: The Trustee for the X Trust (the Trust) holds the property. Person A (the Trustee) is the executor of the Will of Person B and sole trustee of the Trust established under the Will of Person B (the deceased). The principal beneficiaries of the Trust are Person C, Person D and the trustee. The property has the following features: • The property is approximately 4 acres in size and includes a dwelling. • The dwelling is listed by the council as a heritage building referred to as X House by the X City Council. The history of the property is as follows: • The property was originally owned 100% by the trustee's parent, with the title being registered on DD MM 19YY. • On DD MM 19YY, the title was updated so that the trustee's parents became joint tenants (a 50% share each). • When the trustee's parent passed in MM 19YY, their X% share was transferred to the deceased (the trustee's mother). The title was updated to reflect the X% ownership on DD MM 19YY. • The deceased passed away on DD MM 20YY which resulted in the property moving into the testamentary trust. • The property has only ever been used as a residence with no farming or other business activities. • The dwelling was the main residence of the deceased and continues to be the main residence of the trustee and family member, Person D. • Both the trustee and Person D have lived at the property since birth and neither have ever moved out of the family home. Under the Trust Deed included in the Will, the trustee had a right to reside for X years and had a requirement to subdivide the property into two components; one quarter (approx. 1 acre), which they could retain with the house, and three quarters (approx. 3 acres) that was to be sold and distributed to all beneficiaries. This requirement is expressly set out in Clause 6 of the Will: The Testamentary Trust was to vest within X years of DD MM 20YY; however, this was extended on DD MM 20YY to DD MM 20YY via a deed of variation and may be extended again subject to settlement of the contract with the developer. In accordance with the Will, the Trust sought expressions of interest from developers to subdivide the Property into two lots, and on DD MM 20YY, entered into a sale contract with X Pty Ltd (the Developer). Upon completion of the subdivision, the Developer will acquire the vacant land being, being Lot 2 RP XX on proposed Plan X, which forms part of Lot 3 RP XX and comprises an area of Xx m2, for $XX,XXX. The Trust will retain Lot 1 RP XX, and comprises an area of XXm2 and contains the existing dwelling. The Trust is not providing any financial support in relation to the subdivision. The developer must use its own finances and security to obtain development approval for the property: 2.9 As soon as reasonably practicable, but no later than the Survey Plan Registration Date the Buyer at its own cost and expense shall cause the Survey Plan to be registered in Titles QLD and the Buyer will pay all Titles QLD registration fees, and any requisition fees to give effect to such registration. 5.1 Upon the Buyer obtaining the Approval, the Buyer must carry out all work and do all things necessary for the sealing and registration of the Survey Plan including satisfaction of all Council conditions at its sole cost. The Buyer acknowledges that the Seller is not required to contribute to these development costs and that, at the time of sealing the Survey Plan, all the conditions of the Approval will be satisfied or adequately secured by bank bond as required by the Council. The Trust does not hold an Australian Business Number (ABN).

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 15-15 | Income Tax Assessment Act 1997 section 104-10 | 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 184-1(3)

Reasons for decision: Detailed Reasoning - Treatment of profits from land development: Broadly, profits from land development, subdivision and sale can be treated for taxation purposes in the following three ways: • As ordinary income under section 6-5 of the ITAA 1997 (revenue account) resulting from carrying on a business of land development and the sale of subdivided land as trading stock. • As ordinary income under section 6-5 of the ITAA 1997 (revenue account) resulting from isolated business or commercial transaction entered into by a non-business taxpayer, or outside the ordinary course of business of a taxpayer carrying on a business, which is the commercial exploitation of an asset acquired for a profit-making purpose. To the extent that any capital gain arises it is reduced by the assessable amount of ordinary income. • Solely as statutory income under the capital gains tax (CGT) provisions. Under section 6-5 of the ITAA 1997, your assessable income includes the ordinary income you derived directly or indirectly from all sources, during the income year. Additionally, section 15-15 of the ITAA 1997 includes profit arising from carrying on or carrying out of a profit-making undertaking or plan. However, this provision does not apply to a profit that is assessable as ordinary income under section 6-5 of the ITAA 1997, or which arises in respect of the sale of property acquired on or after 20 September 1985. Although the income tax legislation does not define income according to ordinary concepts, a substantial body of case law has evolved to identify various factors that indicate the nature of ordinary income. In FC of T v The Myer Emporium (1987) 163 CLR 199; 87 ATC 4363; (1987) 18 ATR 693 ( Myer Emporium ), the Full High Court expressed the view that profits made by a taxpayer who enters into an isolated transaction with a profit making purpose can be assessable income. Taxation RulingTR 92/3 considers the assessability of profits on isolated transactions in light of the principles outlined in Myer Emporium . According to Paragraph 1 of TR 92/3, the term isolated transactions refers to: • those transactions outside the ordinary course of business of a taxpayer carrying on a business, and • those transactions entered into by non-business taxpayers. Paragraph 6 ofTR 92/3 provides that a profit from an isolated transaction will generally be income when both the following elements are present: • your intention or purpose 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. Additionally, if a taxpayer acquires an asset with the intention of using it for personal enjoyment but later decides to commit the asset, either: • as the capital of a business or • into a profit-making undertaking with the characteristics of a business operation or commercial transaction, this activity constitutes the carrying on of a business, or a business operation or commercial transaction. The profit from such activity is income even though the taxpayer did not have the purpose of profit-making at the time of acquiring the asset. Some of the factors to consider when looking at whether an isolated transaction amounts to a business operation or commercial transaction are listed at paragraph 13 of TR 92/3. They are: (a) the nature of the entity undertaking the operation or transaction (b) the nature and scale of other activities undertaken by the taxpayer (c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained (d) the nature, scale and complexity of the operation or transaction (e) the manner in which the operation or transaction was entered into or carried out (f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction (g) if the transaction involves the acquisition and disposal of property, the nature of that property and (h) the timing of the transaction or the various steps in the transaction. Profits on the sale of subdivided land can therefore be income according to ordinary concepts within section 6-5 of the ITAA 1997, or as a profit-making undertaking or plan within section 15-15 of the ITAA 1997, if the taxpayer's subdivisional activities have become a separate business operation or commercial transaction, or an isolated profit-making venture. In contrast, paragraph 36 of TR 92/3 notes that the courts have often said that a profit on the mere realisation of an investment is not income, even if the taxpayer goes about the realisation in an enterprising way. However, if a transaction satisfies the elements set out above it is generally not a mere realisation of an investment. | Detailed Reasoning - Land sold as part of carrying on a business of property development: Whether the sale of land is a disposal in the course of carrying on a business is determined by examining and weighing all the relevant facts and circumstances taken as a whole. In this case, it is accepted that the Trustee is not in the business of property development. The subdivision was mandated by the terms of the Will and the Trustee merely negotiated the sale of the vacant land to a developer. | Detailed Reasoning - Profit from an isolated business or commercial transaction: In this case, it is considered that the proceeds from the sale of the vacant portion of the land will not constitute an isolated profit-making transaction or the profit arising from the carrying on or carrying out of a profit-making undertaking or plan. Instead, the proceeds will represent the mere realisation of a capital asset. The property has been held by the family for many years, and the subdivision was mandated by the terms of the Will. The Trustee merely negotiated the sale of the vacant land to a developer through an expression of interest process. Consequently, the proceeds will not be assessable under either section 6-5 or section 15-15 of the ITAA 1997. The proceeds will be assessed solely on capital account under the capital gains tax provisions of the ITAA 1997. | Detailed Reasoning - Question 2: Is the Trustee carrying on an enterprise of property development and as a result will the sale of the subdivided lot be a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | Detailed Reasoning - Detailed reasoning: Section 9-5 of the GST Act 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 Australia; 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 accordance with subsection 184-1(3) of the GST Act, a person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity for GST purposes. For example, where an individual is the trustee of a trust, the individual in his or her personal capacity is one entity. As trustee of a particular trust, he or she is a different entity. In your case, the sale of the subdivided land meets the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act because: • The sale of the subdivided lot will be made for consideration; and • The supply is connected with Australia, as the land is located in Australia. There are no provisions in the GST Act that would make your supply of the subdivided land GST-free or input taxed. Therefore, we need to determine is whether the sale of the subdivided lot is in the course or furtherance of an enterprise you carry on (9-5(b)), and as you are not registered for GST; whether you are required to be registered (9-5(d)). Subsection 9-20(1) of the GST Act 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. The Tax Office view on what constitutes an enterprise is contained in 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). Goods and Services Tax Determination GSTD 2006/6 Goods and services tax:does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the principles contained in MT 2006/1 apply equally to the terms entity and enterprise as used in the GST Act and can be relied on for GST purposes. Paragraph 11 of GSTD 2006/6 states: An enterprise includes an activity, or series of activities, done in the form of a business. The phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business ... | Detailed Reasoning - In the form of a business: Paragraphs170 to 232 of MT 2006/1 discuss the factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178, with refence 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 business in the same or similar trade; • activity is systematic, organised and carried out in a business-like way 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 and skill. Based on the facts provided, we do not consider that the Trustee's actions of subdividing the property into two lots, and selling the vacant land constitute activities done in the form of a business. | Detailed Reasoning - 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. | Detailed Reasoning - Application to your circumstances: • The property has been owned by the family since 19YY • The property was the trustee's parents main residence until their death on DD MM 20YY • The Trustee and Person D have lived in the property since birth and has remained the main residence since that time. • Under the terms of the Will, the property was transferred to the testamentary trust for X years, with a requirement that it to be subdivided two lots; o approximately one acre, including the existing dwelling, to be retained by the trustee, and o approximately approx. 3 acres) to be subdivided and sold, with the proceeds to be distributed to the beneficiaries • The trustee sought expressions of interest from developers solely for the purpose of carrying out the subdivision in accordance with Will. • The trustee will not be providing any financial support in relation to the subdivision or development activities. • Neither the trustee nor the beneficiaries are in the business of property development. After weighing up all the facts of this case, we consider that the sale of the subdivided lot will be the mere realisation of a capital asset, rather than a sale of a trading asset of a business or an adventure or concern in the nature of trade. | Detailed Reasoning - Conclusion: Accordingly, the sale of the subdivided lot will not be made in the course of furtherance of an enterprise carried on by The Trustee for X Testamentary Trust under section 9-20 of the GST Act. A sale that is not made in connection with an enterprise does not meet s9-5(b) and cannot be a taxable supply. | Detailed Reasoning - Question 3: Will any capital gain or capital loss the Trustee makes when the dwelling is distributed to the beneficiary be disregarded under subsection 128-15(3) of the ITAA 1997? | Detailed Reasoning - Detailed reasoning: Subsection 128-15(3) of the ITAA 1997 provides that any capital gain or capital loss the legal personal representative makes when a CGT asset passes to a beneficiary of a deceased estate is disregarded. Law Administration Practice Statement PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust confirms the Commissioner's long-standing administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 7997, in particular subsection 128-15(3). The cost base and reduced cost base of the asset in the hands of the beneficiary is calculated in the same way as it would have been if the asset had passed to them from the deceased's legal personal representative. If the deceased acquired the asset before 20 September 1985 (that is, pre-CGT), the acquisition cost will be equal to the market value at the date of the deceased's death. If the deceased acquired the asset on or after 20 September 1985, the beneficiary's acquisition cost will be determined in accordance with table items 1, 2, 3 or 3A of subsection 128-15(4) of the ITAA 7997. | Detailed Reasoning - Application to your circumstances: In this case, any capital gain or capital loss the Trustee makes when the dwelling is distributed to the beneficiary will be disregarded under subsection 128-15(3) of the ITAA 1997

Question 1: Will the proceeds of the sale of the sub-divided lot be a mere realisation and therefore be subject only to the capital gains tax provisions in the Income Tax Assessment Act 1997 (ITAA 1997)?