Private ruling: Subdivision – incorrectly claimed on revenue account.
Date of advice: 21 May 2019
Published: July 2019
Ruling period: Year ending 30 June 2014 to Year ending 30 June 2018

Ruling: Q1: Will the proceeds from the sale of the subdivided lots be deemed a mere realisation of a capital asset? | A1: Yes. On balance, it is considered that the proceeds from the sale of the lot will be subject to the CGT provisions in Parts 3-1 and 3-3 of the Income Assessment Act 1997 (ITAA 1997).The sale of the lots will be regarded as a mere realisation of a capital asset. | Q2: Will the profits from sale of the subdivided lots be treated as ordinary income? | A2: No. The proceeds from the sale of the lots will not be assessable as ordinary income from carrying on a business or an isolated commercial transaction. | Q3: Is the sale of the three vacant lots a taxable supply? | A3: No. Having applied all the principles in Miscellaneous Taxation Ruling MT 2006/1 to the present circumstances, we conclude that the sale of the subdivided lots will not be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances: You and your spouse purchased an investment property which had a dwelling on it that you planned to use for main residence at a later stage. Local council made zoning changes which allowed the property to be subdivided. You later decided to live elsewhere. Due to market conditions, the value of the property dropped and you considered subdividing off vacant land from the dwelling. You were able to subdivide the property into more lots and make a larger return; however you kept the existing dwelling and subdivided in to fewer lots, reducing the cost. You engaged the relevant parties to assist with the minor works. You have provided details of the works and the costs incurred. The blocks were actively marketed and sold to separate buyers. You have received conflicting advice on how to treat the sales. You and your spouse have never been involved in property development and do not look to do this in the future. You and your spouse work in unrelated professions to property development.

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 subsection 9-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1