Private ruling: Mere realisation of a capital asset - vacant land
Date of advice: 16 October 2019
Published: January 2020
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX

Ruling: Q1: Are the profits from the sale of the property assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. You do not carry on a business of buying, selling or developing land. You have held the property as vacant land for substantial period of time, during which it was used for private purposes. The approval for the property has lapsed, and you have not taken any further actions to improve the property for sale. | Q2: Are the proceeds from the sale of the property subject to capital gains tax (CGT) under Parts 3-1 and 3-3 of the ITAA 1997? | A2: Yes. The sale of the property is considered to be a mere realisation of a capital asset and the proceeds will be subject to the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997. Proceeds from the sale of the property will not be included in your ordinary income. | Q3: Will the sale be subject to GST? | 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 property will not amount to an enterprise and the sale of the vacant land 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). The sale of the vacant land will be regarded as the mere realisation of a capital asset.

Relevant facts and circumstances: Several years ago you purchased land over a number of acres. The purchase was from the bank as a result of a distressed seller. The property was zoned as sports recreational and used previously used before your purchase for recreational activities. You planned to rent out the premises but were unsuccessful in finding tenants. Shortly after purchase, parts of the property were vandalised and the council requested you either repair or demolish the affected areas. Throughout your years of ownership of the property you considered a number of options of how you would utilise the property as detailed below including: · Building a house for main residence purposes but were fearful of vandalism due to the past events. · Obtaining approval on the vacant land for sale but could not settle on a satisfactory sale price and the approval lapsed. · Developing and selling the land yourself, but concluded the financial risk was too high. You have no direct connection with construction or property development. You have not been involved in the past with property development and have no intention to do this in the future. After holding the property for several years, you have now decided to sell due to how you perceive the property market. You have provided details of the costs associated with the property over the years. You have engaged real estate agents to sell the property on different occasions without concluding in a sale. The property is currently marketed and with a current offer for the property in place.

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 | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20