Private ruling: land subdivision – investment property, pre CGT
Date of advice: 24 January 2019
Published: May 2019
Ruling period: 1 July 2018 to 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the sale of the land that has been subdivided into several lots (the lots) deem to be a mere realisation of an asset? | A1: Yes. The proceeds represent a mere realisation of a capital asset under the capital gains tax (CGT) provisions in Part 3-1 of the Income Tax Assessment Act 1997 . However, as the land was acquired before 20 September 1985, any capital gain or capital loss will also be disregarded for CGT purposes. | Q2: Is the sale of the lots a taxable supply? | A2: No. Having applied all the principles in MT 2006/1 to the present circumstances, we conclude that the sale of the lots does not amount to an enterprise for GST purposes. The sale of the lots will be regarded as the mere realisation of a capital asset.

Relevant facts and circumstances: You inherited the property before 20 September 1985 when your late spouse passed away. You provided the value of the property at that time and the size of the land. The property has been zoned as residential since acquisition. There has been no change in rezoning. The property has always been used for investment purposes and is currently rented out. It has a building on it which requires significant repair. You will demolish this building. You provided the current market value of the land and the estimated selling value of the subdivided lots. You provided the plans for the subdivision. You will engage the necessary trades and consultants to carry out the various required tasks such as surveying, demolition and plumbing. You provided the estimated costs associated with the proposed transactions. You will engage a real estate agent to market the subdivided blocks for sale and provided the estimated selling costs and commission amount. The subdivision activities will be privately funded. You have never been involved in subdivision activities or business of land development in the past and do not plan to undertake these activities in the future. You are not registered for GST. You are unemployed and you haven’t been involved in the building trade in the past.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 112-25 | A New Tax System (Goods and Services Tax) Act 1999 section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1