Private ruling: Subdivision of land
Published: December 2014
Ruling period: Year ending 31 December 2016
Date scheme commenced: 1 January 20XX

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: You purchased land with your spouse. You intended to build a home business and family home for retirement purposes. A warehouse shed was built on the property to store items for your business. Due to financial circumstances, the plan to build a family home was placed on hold; instead the home became a rental property from time to time. You later became the sole owner of the property as a result of a divorce. A caveat was placed on the property due to an ongoing divorce dispute. The caveat was withdrawn some time later. A surveyor/planner was engaged to submit an application for a planning permit for the subdivision of land and organised an environmental audit. A conditional planning permit for subdivision was obtained. The property was placed on the market and has not sold. It is anticipated that the subdivision with commence in 20XX. During the subdivision you will continue to operate your existing business. Your current income earning activities do not involve property development and you have never had any previous involvement in subdividing land or property development. You will not be involved in the actual process of the development and sales. You intend to engage the services of a surveyor and engineer to conduct the necessary works. It is intended that the land only be developed to the minimum level required by council. You propose to keep a lot for your family's principle residence. The project will be financed through your existing home loan.

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. Carrying on a business of property development Based on the information provided, we do not considered that any proceeds received from the sale of the subdivided land would not be derived in the course of carrying on a business. 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.