Private ruling: Income
Published: December 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are the proceeds from the sale of the property assessable as ordinary income? | A1: No. | Q2: Are the proceeds from the sale of the property considered a mere realisation of a capital asset for income tax purposes? | A2: Yes.

Relevant facts and circumstances: A property was purchased in the 2010-11 financial year. The partnership intended to develop the property and then rent it to a related party. The property was rented out while the development process was progressing. The plans were drawn up and the development ceased as the partnership was unable to finance the development. The property was sold in the 2013-14 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: We need to determine whether the proceeds from the sale of the asset: • are assessable ordinary income under section 6-5 of the ITAA 1997 as you were carrying on a business of property development • are assessable ordinary income under section 6-5 of the ITAA 1997 as you conducted an isolated commercial transaction with a view to a profit, or • are a realisation of a capital asset and assessable under the CGT provisions of the ITAA 1997. | Detailed Reasoning - Carrying on a business of property development: Based on the information provided, we do not consider that any proceeds received from the sale of the subdivided land would not be derived in the course of carrying on a business. | Detailed Reasoning - Profits from an isolated transaction: Profits arising from an isolated business or commercial transactions will be ordinary income if the taxpayer's purpose or intention in entering into the transaction is to make a profit, even though the transaction may not be part of the ordinary activities of the taxpayer's business ( FC of T v. Myer Emporium Ltd 1987 163 CLR 199; 87 ATC 4363; 18 ATR 693) (Myer Emporium). Taxation Ruling TR 92/3 considers the principles outlined in the Myer Emporium case and provides guidance in determining whether profits from isolated transactions are assessable under section 6-5 of the ITAA 1997 as ordinary income. Having regards to your circumstances and the factors outlined in TR 92/3, we do not consider that the proceeds from the sale of the asset will be assessable under section 6-5 of the ITAA 1997. We consider that the disposal of the property will be a mere realisation of a capital asset.