Private ruling: Income Tax ~~ Capital Gains Tax ~~ CGT event - general
Published: July 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the profit from the sale of your land included as ordinary income under Section 6-5 of the Income Tax Assessment Act 1997 ? | A1: No | Q2: Is the profit from the sale of your land to be treated as a Capital Gain? | A2: Yes

Relevant facts and circumstances: The property was purchased before 19 September 1985 by your parents. Prior to 20 September 1985 the property was used by your parents to operate a business. The property was leased by your parents prior to and after 19 September 1985. Your last remaining parent passed away. The land was transferred under a will to multiple beneficiaries, which you are one of. A developer has been appointed to subdivide the land and sell the lots so that the beneficiaries could realise the value of their property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Section 15-15

Reasons for decision: Detailed Reasoning - Realisation of a pre-CGT asset: The proceeds from the mere realisation of a capital asset or from the change of an investment do not give rise to income according to ordinary concepts or to a profit arising from a profit-making undertaking or plan within the meaning of section 15-15 of the Income Tax Assessment Act 1997 (for property acquired before 19 September 1985), even if the realisation or change is carried out in the most advantageous manner. The Commissioner considers that, in the following circumstances, the net profit on the sale of land is assessable as ordinary income, although each case must be determined on its facts: • where land is acquired in an isolated commercial transaction for the purpose of development, subdivision and sale (TD92/124) • where land is acquired in an isolated commercial transaction for the purpose of development, subdivision and sale, but the development and subdivision do not proceed and the land is subsequently sold (TD 92/126) • where land is acquired for development, subdivision and sale but the development is abandoned and the land is sold in a partly developed state (TD 92/127) • where land is acquired for development, subdivision and sale but, after some initial development, the project ceases and is recommenced in a later income year (TD 92/128). Your land was acquired through inheritance from a deceased estate, it therefore cannot be said that you acquired the land with a purpose of development, as such your purpose becomes consequential to the acquisition from the inheritance.