Private ruling: CGT - tax consequences
Date of advice: 22 January 2025
Published: 17 March 2025
Ruling period: <Income year of the sale>
Date scheme commenced: <Income year Person A acquired the Property>

Ruling: Q1: Does the sale of the Property by the trustee for the XXTT constitute the mere realisation of the Property and buildings such that the calculation of any tax payable on the sale proceeds is solely determined under the capital gains tax provisions contained in Part 3-1 of the ITAA 1997? | A1: Yes. | Q2: If the answer to Question 1 is 'yes', are each of the land and buildings constructed on the land separate assets for CGT purposes? | A2: No. | Q3: If the answer to Question 1 is 'yes', is any capital gain made on sale of the buildings calculated as follows.... value of buildings at date of sale less the cost base of the buildings? | A3: No. A capital gain for the single CGT asset representing the land and buildings would be calculated on the basis that capital proceeds are the gross sale proceeds, with the cost base taken to be the market value of the Property on Person A's death. | Q4: If the answer to Question 1 is 'yes', is the Property (absent the buildings situated thereon) a pre-CGT asset such that any capital gain made on sale of it is disregarded under section 104-10 of the ITAA 1997? | A4: No. | Q5: If the answer to Question 1 is 'yes', does the CGT discount apply in relation to the CGT events arising from the sale of the Property and buildings? | A5: No. | Q6: If the answer to Question 1 is 'no', and the Commissioner considers the sale of the Property to be taxable on revenue account, is the profit on sale of the Property calculated by deducting from the sale proceeds (exclusive of GST) the direct costs of the project and the market value of the land at the time of the Joint Venture's commencement? | A6: Not applicable because the answer to Question 1 is 'yes'.

Relevant facts and circumstances: 1. The applicant provided the documents listed in paragraph 31 of these facts and circumstances to support their ruling application. While we haven't expressly quoted from those documents in the text of these facts and circumstances, the entire contents of those documents are treated as incorporated in the facts and circumstances of this private ruling, as if they had been quoted in full. 2. Person A acquired property ( Property ) some time before 20 September 1985. 3. At purchase, the Property consisted of both unimproved land and improved land. <paragraph partly redacted for privacy reasons> 4. Person A started to use the Property for residential, business, and income producing purposes. Person A lived on the Property, conducted a business on the Property, and rented out parts of the Property to third party business and residential tenants. 5. A government agency resumed the part of the Property on which Person A conducted their business and on which their residence was situated. 6. Person A's use of the Property was affected by the resumption. The residence was relocated to another part of the Property, with Person A living in temporary accommodation on the Property pending relocation. Person A was forced to stop their business. 7. Person A rejected several offers to sell the Property over the years. 8. Sometime after 20 September 1985, Person A entered an arrangement to develop the Property after being approached by a developer named Person B. This arrangement evolved through various agreements and amendments. <details have been removed for privacy reasons> 9. The applicant provided documents relevant to Person A's dealings and intentions concerning the development project and the Property. <details have been removed for privacy reasons> 10. During the course of the development project, Person A and Entity C considered restructuring the project in response to pressure from financial institution, with Advisory Firm F providing advice about restructuring options. 11. Advisory Firm F gave that advice in two letters. (These letters weren't included in the supporting documents and haven't been incorporated in the facts and circumstances, except to the extent they're summarised in paragraphs 12 to 14.) 12. The first letter was about the taxation implications of two restructuring options. • Under Option 1, Person A would retain personal ownership of X% of the land and transfer X% to Entity C or a related entity. • Under Option 2, Person A would transfer the land to a company or trust jointly owned by Person A and Entity C. 13. The second letter concluded that under Option 2, a trust would be preferable to a company for taxation purposes, but that Option 1 would deliver the greatest after-tax return on a future sale because it would retain the Property's pre-CGT status. 14. Advisory Firm F made a statement in the letter to the effect that Advisory Firm F understood that the intention of the parties was to hold the Property as a capital asset for the purpose of lease rentals to produce an income stream. 15. Person A didn't proceed with any restructure proposal, with the Property remaining in their personal name until their death. 16. Person E became Person A's representative for dealing with the project. In the course of negotiating the JVA, the relationship between Person A and Entity C broke down. Entity C required as a condition of the JVA that Person A appoint an attorney to represent their interest in the joint venture. 17. Person A's circumstances changed as others became responsible for their affairs. Person A lost mental and legal capacity. The Public Trustee in the relevant state or territory became responsible for Person A's personal affairs at that time. A tribunal confirmed Person E's appointment as enduring power of attorney in relation to Person A's interest in the Property. 18. The Registrar of the Supreme Court of the relevant state or territory made a statutory willon behalf of Person A (Statutory Will) . 19. The development project on the Property reached its final state in AAAA, achieving practical completion to Stage X of the project plan, as outlined in Table 1. <Table deleted for privacy reasons> Table 1: stages of development project <deleted for privacy reasons> 20. The parties to the JVA agreed the possibility of selling the Property ought to be explored. 21. Person E submits that he (as Person A's attorney) decided to explore the option of a sale as he considered it was in Person A's best interests. 22. Person A died on X Month XXXX. 23. Around X months later, in the same income year as Person A's death, the Property was transferred to the XX Testamentary Trust (XXTT) under Person A's Statutory Will. 24. Person E was trustee of the XXTT. 25. <This paragraph has been redacted for privacy reasons.> 26. Person E, in their capacity as trustee for the XX Testamentary Trust, entered into a contract for sale of the Property for $X on X Month XXXX, in the same income year as Person A's death (contract of sale) . 27. Person E sought directions from the Supreme Court of the relevant state or territory about whether he was justified in entering and executing the contract for sale. 28. The Supreme Court of the relevant state or territory gave orders confirming Person E had power, was permitted, and was otherwise justified to sell the Property and enter into and perform the sale contract (Supreme Court order) . 29. Settlement of the contract for sale happened in the following income year. 30. At sale buildings and improvements on the Property contained premises capable of housing over X commercial tenancies, most of which had leases in place. 31. The applicant gave us documents, which we are treating as incorporated in the facts, but have redacted for privacy reasons in this Edited Version.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Section 70-5 | Section 70-10 | Section 104-10 | Section 108-5 | Section 108-55 | Section 108-70 | Section 115-5 | Section 115-25 | Section 115-30 | Section 118-20 | Section 128-15

Reasons for decision: Summary: 32. Broadly, the CGT provisions include capital gains from CGT events (which include disposals of assets) in assessable income, but capital gains are reduced to the extent any amounts are already assessed under other provisions (such as section 6-5, about ordinary income). 33. Proceeds from the sale of property could be assessed under section 6-5 as ordinary income if the property was either held as trading stock as part of a business of holding or developing land for sale, or was assessable as an isolated profit-making transaction. 34. The ATO view is that net profit from the sale of property (as an isolated transaction) is assessed as ordinary income when: • the taxpayer's purpose on entering the transaction was to make a profit or gain, and • the profit was made in the course of carrying on a commercial transaction. 35. The High Court decision in Official Receiver v Commissioner of Taxation ('Fox's case') [1] suggests that when a trustee sells property it acquired on the death of an individual, the trustee's purpose needs to be assessed at the time the trustee acquired the property. 36. Here, we don't think the XXTT had a profit-making purpose because it acquired the Property under Person A's Statutory Will and sold it within a few months without undertaking further development activities. 37. We don't think that the XXTT was carrying on a business of holding or developing land for sale for similar reasons. 38. It follows that the XXTT will be assessed under the CGT provisions rather than as ordinary income. | Detailed Reasoning - Explanation: 39. Broadly, Part 3-1 calculates capital gains and losses from CGT events and includes any net capital gain in your assessable income. 40. Section 118-20 may reduce a capital gain by an amount that has already been assessed under another provision. | Detailed Reasoning - Ordinary income under section 6-5 would include sales from carrying on a business or net profit on a profit-making isolated transaction: 41. The sale of Property resulted in a CGT event and a potential capital gain or loss to the XXTT - see our reasons for Questions 2, 3, 4, and 5. 42. To determine if the sale proceeds could be assessed as ordinary income, we need to consider whether the XXTT disposed of the Property either as part of a business of developing land for sale, or as part of a profit-making undertaking. 43. For a taxpayer in the business of holding land for resale, and dealing in land, land is treated as trading stock: see TD 92/124. [2] 44. For a business taxpayer, gross earnings from the sale of trading stock are usually assessable as ordinary income under section 6-5: see section 70-5. 45. TR 97/11 [3] gives guidance about whether an activity is carrying on a business - we summarise some points it makes at paragraphs 11 to 18. • Cases have established a number of indicators relevant to determining whether activities constitute carrying on a business. • Relevant indicators include whether the activity is a significant commercial activity, purpose and intention to make a profit, whether the activity is profitable, repetition and regularity, whether the activity is conducted in a businesslike manner, size and scale, and the taxpayer's knowledge and skill. • Each case turns on its facts, but the question is generally determined by weighing all the relevant indicators. • No single indicator is decisive, and the weighting may vary from case to case. • The indicators must be considered in combination and as a whole. • Generally, where profit motive is absent and the activity doesn't look like it will ever produce a profit, it's unlikely that the activity will amount to a business. 46. TR 92/3 [4] gives the ATO view on whether profits on isolated transactions are ordinary income. TR 92/3 at paragraph [6] says profits from isolated transactions are generally income when two elements are present. • First, the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain. • Second, the transaction was entered into and the profit made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. 47. We paraphrase some propositions from TR 92/3 about determining the taxpayer's purpose. • Purpose is determined objectively from the facts and circumstances. [7] • The profit-making purpose doesn't need to be dominant - just significant. [8] • Generally for property the taxpayer should have the profit-making purpose when acquiring the property. [9] • However, this isn't always the case, such as where the taxpayer later decides to commit the land to a business or profit-making undertaking with the characteristics of a business operation or commercial transaction, even where the taxpayer didn't have the purpose when acquiring the asset). [41, 42] • It isn't necessary that the profit is eventually obtained by a means specifically contemplated when the taxpayer enters the transaction. Rather, it's enough to either: I. enter the transaction with the purpose of making a profit in the most advantageous way, and realise the profit by any means implementing that initial purpose, or II. enter the transaction with a purpose of making a profit by one particular means, but actually obtain the profit by a different means). [14] Applying the High Court's approach in Fox's case, we have decided to assess purpose from the XXTT's perspective rather than by asking what Person A's purpose would have been had he sold the Property during their lifetime. 48. ATO guidance makes it clear that both questions - whether a taxpayer is carrying on a business or carrying out a profit-making scheme - turn on the taxpayer's purpose. 49. However, ATO guidance doesn't address the situation where an individual had a profit-making purpose but died before completion, and the relevant business operation or commercial transaction was completed by the executor or testamentary trustee. 50. A High Court of Australia decision suggests that a trustee's position should be considered afresh on acquiring the property. In Fox's case, the deceased had entered a development agreement, but the land was unsold on their death. The receiver continued the agreement and sold at a profit. The Commissioner assessed the receiver on profit calculated as the difference between the sale proceeds and the land's value when the deceased acquired the property. The High Court held that the assessment was in error, reasoning this way. The receiver's situation should be considered anew when the assets came into their hands from the deceased. If the trustee was carrying out a profit-making undertaking, that would only become relevant where the receiver made a profit on sale compared to the asset's value on death: ...the official receiver is not in the same situation as the deceased debtor Rankin but that on the contrary as trustee he begins ab initio with the assets that come to their hands and is pursuing a course for their realisation to the best advantage. If they had made a gain or profit in their capacity as trustee of Rankin's estate by the realisation of the assets that came to their hands, it must be because on a comparison, on the one hand, of the value of the assets in the condition in which they came to their hands when the order for administration of Rankin's estate in bankruptcy was made with, on the other hand, the net proceeds of sale after the deduction of all expenditure, it appears that owing to their activities there has been a real gain or profit. It is only when this appears that, if the matter be considered logically, the question presents itself whether the activities which gave rise to the gain or profit are of such a kind that it must be considered income liable to tax in the official receiver's hands. [5] 51. Consistent with Fox's case, we'll characterise purpose from the XXTT's perspective, rather than consider whether Person A was carrying on a business or carrying out a profit-making undertaking. We don't think the XXTT was carrying on a business of developing property for sale. The XXTT simply sold the Property after acquiring it on Person A's death and without undertaking any development activities. 52. Applying TR 97/11 from the XXTT's perspective, most indicia point against carrying on a business. The XXTT acquired the Property on Person A's death, didn't carry out any development activities, and sold the Property a few months after acquiring it. Selling immediately on the market without taking any steps to improve the sale price above the market value on acquisition points strongly against trying to profit: it was simply realising the existing or starting value. While the Property had a high value and the development was substantial, the XXTT had no role in developing the Property and would have made little or no profit. The XXTT hasn't approached the transaction like a property developer would. Therefore, the XXTT wasn't carrying on a business of developing property for sale. We don't think the XXTT was carrying on an isolated profit-making transaction because it sold the Property almost immediately after acquiring it without carrying out any development activities. 53. Applying TR 92/3, we need to consider whether the XXTT had the relevant profit-making purpose and whether the transaction had the relevant commercial character. Following Fox's case, we determine those questions from the XXTT's perspective from the point when it acquired the Property on Person A's death. We don't need to consider whether Person A was carrying on a profit-making undertaking or would have carried out a commercial transaction, because Person A didn't sell the Property in their lifetime. 54. Taking that as the starting point, we don't think the XXTT had a profit-making purpose. The XXTT acquired the Property on Person A's death. It entered a contract to sell the Property in the same income year, and just a few months after the death. While the XXTT was a party to the joint venture agreement, this was a condition forced upon it by Person A's Statutory Will, and the XXTT sought court directions that it was justified in selling the Property. The XXTT didn't conduct or seek to continue any development operations, but just sold the Property in the state in which it acquired it. We think selling the Property almost straight away without taking steps to develop it or improve its value shows there wasn't a profit-making purpose. 55. We note that even if the XXTT had a profit-making purpose, there would likely be little or no profit to assess. Following Fox's case, any profit would be determined and calculated using the Property's value when it acquired it on Person A's death. Given only a few months passed between acquisition and sale, we expect that the sale proceeds and market value on acquisition would have been about the same. 56. Given we don't think the XXTT had a profit-making purpose, the first element of TR 92/3 isn't met, so we don't need to consider whether the second element (about being a business or commercial operation) is met. Conclusion on ordinary income: the XXTT isn't assessable for the sale proceeds under section 6-5 because it wasn't carrying on a business of developing land for sale and wasn't carrying on a profit-making undertaking. 57. Since we've concluded that the XXTT wasn't carrying on a business of developing land for sale and wasn't carrying on an isolated profit-making undertaking, it follows that the XXTT isn't assessable on any amount of the sale proceeds as ordinary income under section 6-5. 58. Since we haven't identified other provisions which we think will apply, the anti-overlap rule in section 118-20 won't be relevant, and the XXTT will be assessed for any capital gain it may have under the capital gains provisions. | Detailed Reasoning - Question 2: If the answer to Question 1 is 'yes', are each of the land and buildings constructed on the land separate assets for CGT purposes? | Detailed Reasoning - Answer (Question 2): No | Detailed Reasoning - Summary (Question 2): 59. The land and buildings were separate CGT assets in Person A's hands. Where land is a pre-CGT asset, but buildings are constructed after 20 September 1985, subsection 108-55(2) treats the buildings as separate post-CGT assets. This provision applies here because the land component of the Property was a pre-CGT asset but the buildings were built after 20 September 1985. 60. However, the land and buildings became a single asset when they passed to the XXTT. Following ATO guidance, the provisions making buildings and improvements separate assets to pre-CGT land don't apply when it passes to a legal personal representative since the land becomes a post-CGT asset in their hands. Here, the XXTT acquired the Property on Person A's death. Applying that guidance, the Property became a single post-CGT asset at that point. | Detailed Reasoning - Explanation (Question 2): Buildings and structures may be treated as separate assets to land for CGT purposes under rules in Subdivision 108-D. 61. Rules about CGT assets are in Division 108. 62. Section 108-5 says a CGT asset is any kind of property, or a legal or equitable right that isn't property, and Note 1 to the section gives land and buildings as examples of CGT assets. 63. Subdivision 108-D has rules about when assets are treated as separate CGT assets. • Section 108-55 is about when buildings or structures are separate assets from land. • Section 108-70 is about when capital improvements are separate assets from land. • Different rules apply to pre-CGT and post-CGT land for both sections. 64. Under subsection 108-55(1), buildings/structures on post-CGT land are separate assets if a balancing adjustment provision applies to the building or structure. The qualifying provisions include uniform capital allowances (Subdivision 40-D) and R&D (two sections in Division 355). There doesn't need to be a balancing adjustment, but the balancing adjustment provision needs to apply. 65. Very broadly, the Division 40 capital allowance rules (including the balancing adjustment provisions in Subdivision 40-D) apply to depreciating assets. • Depreciating assets are assets which have a limited effective life and can be reasonably be expected to decline in value over the time they're used, except land, trading stock, and some intangible assets: see subsections 40-30(1) and (2). • Division 40 applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land: subsection 40-30(3). • However, depreciating assets for which you can claim a deduction under Division 43 (or could have, if you had a qualifying purpose) are excluded from Division 40: see subsection 40-45(2). • Division 43 applies to 'capital works being a building, or an extension, alteration, or improvement to a building': section 43-20. 66. Subsection 108-70(1) applies roughly the same way as subsection 108-55(1), but to capital improvements rather than buildings. 67. Subsection 108-55(2) treats buildings/structures you constructed on pre-CGT land as separate assets where you entered the construction contract after 20 September 1985 (or started the construction work after that day if there's no contract). 68. Subsections 108-70(2) and (3) treat capital improvements as separate CGT assets to pre-CGT land when a CGT asset happenswhere their cost base is both (1) above the capital improvement threshold, and (2) more than X% of the capital proceeds from the event. 69. Subsection 128-15(2) says when a CGT asset you owned before just before dying devolves to your legal personal representative, the legal personal representative is taken to acquire a CGT asset on the day you died. 70. The ATO view is that assets treated as separate assets under Division 108 don't remain separate assets when they pass to a legal personal representative. TD 96/18 [6] says that improvements built on land that was pre-CGT in the deceased's hands don'tremain separate assets after death when the legal personal representative takes them, but instead become a single asset (i.e., part of the land). It reasons that an improvement isn't a separate CGT asset because section 108-70 doesn't apply to a CGT event that happens because of a person's death. Further, the section doesn't apply to any later disposal by a personal representative because the asset isn't a pre-CGT asset in the legal personal representative's hands. While TD 96/18 is focussed on improvements, section 108-55 (about buildings) is similar to section 108-70, so the same reasoning should apply. This seems supported by the withdrawal notice to ATO ID 2001/514 [7] (Withdrawn), which was about section 108-55, because the notice says it was superseded by TD 96/18. 71. PS LA 2003/12 [8] says the ATO will treat a testamentary trust as a legal personal representative for Division 128 purposes. While the land and buildings were separate assets from Person A's perspective, they are a single post-CGT asset from the XXTT's perspective. 72. From Person A's perspective, Division 108 would have treated the land and buildings as separate assets. The land was a pre-CGT asset in Person A's hands, but the buildings were constructed after 20 September 1985, so subsection 108-55(2) applies to treat the buildings as separate CGT assets. 73. However, from the XXTT's perspective, the land and buildings would be a single asset. Applying section 128-15 and TD 96/18, the XXTT acquired that single CGT asset on Person A's death which is after 20 September 1985. Neither subsection 108-55(1) nor subsection 108-70(1) would treat the buildings as separate assets, because they are capital works under Division 43, and not covered by a balancing adjustment provision in Subdivision 40-D. | Detailed Reasoning - Question 3: If the answer to Question 1 is 'yes', is any capital gain made on sale of the buildings calculated as follows.... value of buildings at date of sale less the cost base of the buildings? | Detailed Reasoning - Answer 3: No. A capital gain for the single CGT asset representing the land and buildings would be calculated on the basis that capital proceeds are the gross sale proceeds, with the cost base taken to be the market value of the Property on Person A's death. | Detailed Reasoning - Explanation: CGT event A1 happened when the XXTT sold the Property, and we calculate the gain or loss by comparing proceeds from the sale with the asset's cost base. 74. Broadly, the CGT rules calculate gains and losses from CGT events and include any net capital gain in your assessable income. 75. We only need consider CGT event A1 here, about disposing of a CGT asset. • CGT event A1 happens if you dispose of a CGT asset, and you dispose of a CGT asset when there's a change of ownership from you to another entity: see subsections 104-10(1) and (2). • You make a capital gain from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base: subsection 104-10(4). • A capital gain from CGT event A1 will be disregarded if you acquired the asset before 20 September 1985: subsection 104-10(5). 76. CGT event A1 happened on the sale. The Property is a CGT asset. The XXTT owned the Property and transferred ownership to the buyer. There was a change of ownership to another entity, and hence a disposal of the CGT asset. The XXTT's capital proceeds will be the total sale proceeds. 77. Section 116-20 says the capital proceeds from a CGT event are money or market value of other property you have received (or are entitled to receive) in respect of the event happening. 78. The XXTT's capital proceeds are the money received under the sale contract. First element of cost base is the market value of the property on person A's death. 79. Cost base is usually worked out under rules in Division 110, but it can be modified in other situations. Section 110-25 says cost base has five elements. The first element is the money you paid and market value of other property you gave in respect of acquiring the assets. The remaining elements include incidental costs, ownership costs, and some capital expenditure. But section 128-15 modifies the first element of cost base for assets for a legal personal representative or beneficiary in your estate when you die. 80. We'll explain section 128-15. • Section 128-15 applies when a CGT asset you owned just before dying devolves to your legal personal representative. • Subsection 128-15(2) says the legal personal representative is taken to have acquired the asset on the day you die. • The table in subsection 128-15(4) sets the first element of cost base for the asset in the hands of the legal personal representative. • Item 2 of that table says for an asset that was trading stock in your hands just before you died, the first element of the asset's cost base is the amount worked out under section 70-105. • Item 4 of the same table says for an asset you acquired before 20 September 1985, the first element of the asset's cost base is the asset's market value on the day you died. 81. Section 70-10 says trading stock includes anything produced, manufactured, or acquired that's held for purposes of manufacture, sale, or exchange in the ordinary course of a business (and live stock). 82. Section 70-105 is about what happens when you die holding trading stock. Subsection 70-105(2) says that when you die, the entity on which the trading stock devolves is treated as having bought it for its market value at that time. Subsection 70-105(3) says your legal personal representative can elect to instead include the amount that would have been the value of the trading stock at the end of the income year ending on the day of your death. However, subsection 70-105(5) says the legal personal representative can only make the election if they continue to carry on the business and continue to hold the item as trading stock. 83. As mentioned in our reasons to Question 2 at paragraph 70, TD 96/18 says separate assets in the deceased's hands don't become separate assets in the legal personal representative's hands under section 108-70. 84. PS LA 2003/12 says the ATO will treat a testamentary trust as a legal personal representative for Division 128 purposes. 85. Example 2 in TD 96/18 implies that in the legal personal representative's hands, the first element of cost base for a building plus improvements would be worked out under subsection 128-15(4) as a single asset - i.e., market value if the land is pre-CGT. 86. As mentioned in our reasons to Question 2 at paragraph 70, the approach in TD 96/18 would apply equally to buildings treated as separate assets in Person A's hands. 87. The XXTT's cost base will be the Property's market value on Person A's death. The land was a pre-CGT asset in Person A's hands, and the land and buildings are a combined CGT asset in the XXTT's hands. If it wasn't trading stock, Item 4 applies to treat the first element of the XXTT's cost base as the Property's market value on Person A's death. If it was trading stock in Person A's hands, Item 2 would produce the same result. Since we concluded in Question 1 that the XXTT didn't carry on a property development business, it follows that the XXTT didn't continue to carry on any property development business Person A may have been carrying on. It follows that the XXTT can't make the election in 70-105(3), so the Property will take its market value even if the Property was trading stock for Person A. Therefore, we don't need to determine whether the Property was trading stock in Person A's hands. Conclusion: the capital gain or loss compares the sale proceeds with the property's market value on person A's death. 88. The XXTT would calculate its capital gain or loss from the sale by comparing the sale proceeds with the Property's market value on Person A's death. | Detailed Reasoning - Answer 4: No | Detailed Reasoning - Explanation: 89. Subsection 104-10(5) says a capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985. 90. The land was a pre-CGT asset and the buildings were treated as a separate post-CGT asset in Person A's hands. 91. However, the XXTT was the entity disposing of the Property, and, as we explained in our reasons to Question 2 at paragraph 73, the Property is treated as a single CGT asset in the XXTT's hands. 92. Subsection 128-15(2) says when a CGT asset you owned before just before dying devolves to your legal personal representative, the legal personal representative is taken to acquire a CGT asset on the day you died. 93. Section 115-30 has other acquisition rules for legal personal representatives, but they only apply to the discount provisions in Division 115. 94. PS LA 2003/12 says the ATO will treat a testamentary trust as a legal personal representative for Division 128 purposes. 95. The XXTT is a testamentary trust, so applying subsection 128-15(2) and PS LA 2003/12, we'll treat the XXTT as having acquired the asset on Person A's death. 96. Therefore, subsection 104-10(5) won't disregard the XXTT's capital gain because it acquired the asset after 20 September 1985. | Detailed Reasoning - Question 5: If the answer to Question 1 is 'yes', does the CGT discount apply in relation to the CGT events arising from the sale of the Property and buildings? | Detailed Reasoning - Answer 5: No. | Summary: 97. One condition for the CGT discount is that the CGT event happened at least X months after you acquired the property. 98. We are treating the XXTT as having acquired the entire Property (including both land and buildings, treated as a single CGT asset) on Person A's death. 99. Since the CGT event happened on sale (X months after the death), the XXTT fails to meet the X-month holding condition, and so doesn't qualify for the CGT discount. | Detailed Reasoning - Explanation: A legal personal representative is treated as having acquired a CGT asset that was a pre-CGT asset (in the deceased's hands) on the deceased's death for discount capital gain purposes. 100. Division 115 has rules about discount capital gains. Section 115-5 says a discount capital gain is a capital gain that meets the requirements of 4 sections. 101. One of those requirements - in section 115-25 - is that the capital gain must result from a CGT event happening to a CGT asset that was acquired by the entity making the capital gain at least 12 months before the CGT event. 102. Subsection 104-10(3) says the time of the CGT event is when you enter into the contract for the disposal, or when the change of ownership happens if there's no contract. 103. Section 115-30 modifies when you are treated as acquiring a CGT asset for Division 115 purposes. Subsection 115-30(1) says section 115-25 applies as if the acquiring entity had acquired the CGT asset in circumstances described in the table. • Item 3 says a CGT asset the acquirer acquired as the legal personal representative of a deceased individual, except one that was a pre-CGT asset of the deceased immediately before his or her death, is treated as having been acquired when the deceased acquired the asset. • Item 5 says a CGT asset that the acquirer acquired as the legal personal representative of a deceased estate, which was a pre-CGT asset of the deceased immediately before his or her death, is treated as having been acquired when the deceased died. 104. PS LA 2003/12 says the ATO will treat a testamentary trust as a legal personal representative for Division 128 purposes. 105. Section 149-10 says a CGT asset is a pre-CGT asset if the entity last acquired the asset before 20 September 1985 (where Division 149 or predecessor provisions haven't applied to stop it being a pre-CGT asset). Since the Property is a single pre-CGT asset, the XXTT will be treated as having acquired the Property on Ansley's death, so the 12-month requirement isn't met. 106. Similar to our reasons in Question 2 at paragraph 73, we think the Property will be treated as a single asset in the XXTT's hands. • Subdivision 108 treated the land and buildings as separate CGT assets in Person A's hands. • But Division 108 doesn't apply to treat the land and buildings as separate CGT assets in the XXTT's hands because the XXTT acquired the asset on Person A's death, not before 20 September 1985, and no balancing adjustment applies. See Question 2 at paragraph 73. • Consistent with the approach in TD 96/18 for Division 128, we think that Division 115 will apply as if the Property was a single CGT asset (including both land and buildings) which was a pre-CGT asset in Person A's hands. 107. Therefore, XXTT will be treated as having acquired the Property on Person A's death under Item 5 of the table in subsection 115-30(1), because it was a pre-CGT asset in Person A's hands. 108. It follows that the X-month requirement in section 115-25 isn't met. • Section 115-25 requires that the CGT asset must have been acquired at least X months before the CGT event. • The XXTT is taken to have acquired the Property on Person A's death in Month XXXX. • Since there's a contract, the time of the CGT event will be the sale contract date a few months after Person A's death. • The sale contract date is less than 12 months after Person A's death, so section 115-25 isn't met. Conclusion: the CGT discount isn't available. 109. Since section 115-25 isn't met, any capital gain on the sale of the Property isn't a discount capital gain, so the CGT discount isn't available. | Detailed Reasoning - Question 6: If the answer to Question 1 is 'no', and the Commissioner considers the sale of the Property to be taxable on revenue account, is the profit on sale of the Property calculated by deducting from the sale proceeds (exclusive of GST) the direct costs of the project and the market value of the land at the time of the Joint Venture's commencement? | Detailed Reasoning - Answer 6: Not applicable because the answer to Question 1 is 'yes'. [1] Official Receiver v Commissioner of Taxation (1956) 96 CLR 370 ('Fox's Case'). <High Court of Australia (Full Court - Dixon CJ, Williams, Webb, Fullagar, and Kitto JJ> [2] Taxation Determination TD 92/124 Income tax: property development: in what circumstances is land treated as 'trading stock'? [3] Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? [4] Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income [5] Fox's case at 384. [6] Taxation Determination TD 96/18 Income tax: capital gains: if after 19 September 1985 a person makes a capital improvement to a pre-CGT asset, does subsection 108-70(2) of the Income Tax Assessment Act 1997 deem the improvement to be a separate CGT asset on the person's death or on any later disposal by the legal personal representative (LPR) or a beneficiary? [7] ATO Interpretative Decision ATO ID 2001/514 (Withdrawn) Income Tax Income Tax: Capital Gains: Deceased Estates: Separate Assets [8] Practice Statement Law Administration PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust.