Private ruling: Income tax - property development
Date of advice: 18 May 2026
Published: 27 July 2026
Ruling period: Year ended 30 June 20YY

Ruling: Q1: Is the gain on the sale of the Shares by the Trust assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as income made in the ordinary course of carrying on a business? | A1: No. | Q2: Is the gain on the sale of the Shares by the Trust assessable income under section 15-15 of the ITAA 1997 as profit arising from the carrying on or carrying out of a profit-making undertaking or plan? | A2: No. | Q3: Are the Shares trading stock for the purposes of section 118-25 of the ITAA 1997? | A3: No. | Q4: Is the sale of the Shares by the Trust a mere realisation of a capital asset and thus subject to the capital gains tax (CGT) provisions under sections 102-5 and 104-10 of the ITAA 1997? | A4: Yes.

Relevant facts and circumstances: Structure 1) The Individual controls Trustee Company. 2) Trustee Company is the trustee for Trust (the Trust). 3) The Trust was set up to allow long term property investment while protecting The Individual from personal exposure. It was set up for the sole purpose of being the sole shareholder in Investment Company with the intention to hold these shares as a passive long term investment. The Trust held these shares for the purpose of generating long term dividend income and benefiting from the capital growth of retained developed properties. 4) The Trust does not conduct a business of share trading. 5) The Trust wholly owns all the shares (Shares) in Investment Company. 6) Investment Company's only role since formation has been as head entity of an income tax consolidated group of entities (The Group) which have owned land subject to residential investment and development. 7) For asset protection and risk mitigation purposes, The Group regularly formed a new special purpose entity for each new residential development project. Generally, upon identification of a residential property development opportunity, Investment Company would form a new subsidiary company, with that subsidiary company acquiring the land and subsequently engaging other entities in The Group to develop the land. In the event the intention for the development is that the developed residential properties are to be sold upon completion of the development, the assessable income from the development would be included as part of Investment Company's assessable income. At an appropriate time, the special purpose entity was then wound up. Background 8) The Individual commenced a career as a real estate agent with the expectation that this would enable them to become both a significant investor in real property and to undertake development activities that would assist them to build the property investment portfolio of a size and scale that they aspired to. 9) The Individual has acquired and kept a number of investment properties personally. 10) The Individual established Family Trust specifically to hold future purchases of investment properties with the intention of holding these for long term investment. Family Trust commenced acquiring investment properties immediately and accumulated a number of investment properties that were a mix of both established homes and house and land packages. 11) The Individual's stated goal was to accumulate a large number of investment properties. Their future development activities at this time were seen by them as the means by which to achieve his goal of owning a large residential investment property portfolio. 12) The Individual engaged in a number of developments via The Group. Land acquisition 13) Investment Company, as sole shareholder, formed SubInvestment Company. 14) SubInvestment Company acquired a block of land (The Land). 15) The Land was subject to a Project Delivery Agreement (PDA), which applied punitive measures for the sale of the undeveloped land. These punitive measures meant that an overall loss would be realised on the sale of any undeveloped land. Intention of The Land acquisition 16) The Land was purchased with the intention of generating passive income through a Build To Rent scheme. 17) The Individual's intention to build to rent (BTR) The Land development is apparent by provided evidence showing: a) their long term intention to hold a significant number properties in their portfolio b) a switch to an overall BTR strategy prior to the purchase of The Land by: i) feasibility studies being conducted on BTR other acquired sites (Other Sites) prior to the acquisition of The Land ii) requested valuations on a BTR basis for the Other Sites iii) correspondence with banks discussing financing on a BTR basis iv) correspondence with Government discussing one of the Other Site's as a BTR project v) requests for tenders being sent out on a BTR basis vi) construction tenders ultimately awarded for the Other Sites on a BTR basis. vii) the project being started on a BTR basis using capital in light of the bank's limited funding c) feasibility study conducted on The Land prior to purchase on a BTR basis d) no marketing activities for selling residential properties were conducted for the Other Sites or The Land site e) no bank finance used for The Land development, given the difficulty of obtaining sufficient finance for a BTR project f) no pre-sale agreements for completed residential properties were made g) continued updates to the initial BTR feasibility study on The Land h) no expected cash flows from presales in relevant cashflow projections Change in intention of The Land development 18) Given issues arising from development approval, the X, ongoing cost escalations, the new National Construction Code 2022, increasing regulation and rising interest rates, the BTR development of The Land and the Other Sites become continually less feasible. 19) The Other Sites were ultimately changed to Build To Sell (BTS) developments. Marketing began for the sale of the residential properties to be developed on these sites. These sites were ultimately sold in the same fashion as previous BTS sites i.e. residential premises being individually sold. 20) The above ongoing issues resulted in continual increasing concerns with The Land development, leading to the decision to dispose of The Land. Given the conditions of the PDA, which applied punitive measures on the sale of any undeveloped land on the site, the disposal of The Land site was made via a share sale. 21) No development had occurred on The Land site. Sale of Investment Company shares as a means to sell The Land 22) The Investment Company shares were sold as the means to sell The Land site without breaching the PDA. 23) At settlement the only assets in Investment Company were the shares in SubInvestment Company. The only asset in SubInvestment Company was The Land. How previous sales of development sites were made 24) Direct sales of residential premises on an individual basis were made on previous BTS sites. 25) There have been no other instances of shares being sold to dispose of land, property or residential premises. 26) There have been no other instances of a whole undeveloped or developed site held by The Group being sold.


Reasons for decision: Summary: 1) The gain on the sale of the shares in Investment Company by the Trust is not assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as income made in the ordinary course of carrying on a business. | Detailed Reasoning - Detailed reasoning: 2) Under section 6-5 of the ITAA 1997 the assessable income of an Australian resident includes the ordinary income they derive directly, or indirectly, from all sources during the income year. Ordinary income is described as income according to ordinary concepts. Typical examples of ordinary income include salary, wages, dividends, rent, and proceeds from carrying on a business. 3) Although the legislation does not define income according to ordinary concepts, a substantial body of case law has evolved to identify various factors that indicate the nature of ordinary income. 4) Section 6-10 of the ITAA 1997 states your assessable income also includes some amounts that are not ordinary income, which is assessable as statutory income. 5) There are 3 ways the proceeds from a property development can be treated for taxation purposes: a) assessable ordinary income under section 6-5 of the ITAA 1997 as income from carrying on a business of property development b) assessable statutory income under section 15-15 of the ITAA 1997 as income from a profit-making undertaking or plan, or c) a mere realisation of a capital asset, assessable under Parts 3-1 and 3-3 as statutory income. | Detailed Reasoning - Carrying on a business of property development: 6) The Commissioner's view on whether a taxpayer is carrying on a business is found in Taxation Ruling TR 97/11 Income tax: Am I carrying on a business of primary production? (TR 97/11). Although TR 97/11 deals with the issues in determining whether a taxpayer is carrying on a business of primary production, the same principles can be applied to the question of whether a taxpayer is carrying on any type of business, including property development. 7) Paragraph 13 of TR 97/11 states that the following indicators are relevant in determining whether a taxpayer is carrying on a business: a) whether the activity has a significant commercial purpose or character; b) whether the taxpayer has more than just an intention to engage in business; c) whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; d) whether there is repetition and regularity of the activity; e) whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; f) whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit; g) the size, scale and permanency of the activity; and h) whether the activity is better described as a hobby, a form of recreation or a sporting activity. 8) In determining whether a taxpayer is carrying on a business, no one indicator will be decisive. The indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the impression gained from looking at all the indicators against the case facts and whether these indicators provide the operations with a commercial flavour. | Detailed Reasoning - Intention when acquiring property: 9) The ATO website, at QC71028, provides that: ...when you sell property that is not part of a property development business you need to understand when the proceeds from the sale of the property are treated as ordinary income or a capital gain.... Your purpose when you enter into an arrangement to purchase, develop or sell the property determines if gains or losses are a capital gain or ordinary income. 10) Generally, when a property is purchased with the intention to sell for a profit, any gain made on sale/s will be ordinary income. Conversely, when a property is purchased with the intention to derive rental income, any gain on its sale will be a capital gain. | Detailed Reasoning - Change of intention: 11) In Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 (Rosgoe case), a trustee purchased two adjacent parcels of land with the original intention to develop and sell the two properties. However, this intended plan was ultimately abandoned as funding could not be secured. The trustee subsequently rented out the two properties until they were sold several years later. The Court held the properties were capital assets and the sale therefore resulted in capital gains, rather than being the sale of trading stock or sold as part of an isolated or commercial transaction that was entered into with a profit-making intention and resulting in ordinary income. It was held that this was due to a change of the original intention. Logan J emphasised that the intent at acquisition and later, on sale of the property should be considered separately and the transactions as distinct activities. When the property was subsequently sold, the profit arose not from the purchase but from the sale, and because the sale was not part of the profit-making scheme, the profit did not arise from the carrying on or carrying out of that scheme. | Detailed Reasoning - Isolated transaction with a profit-making purpose: 12) Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) provides guidance in determining whether the profits from isolated transactions are assessable income under section 25A of the Income Tax Assessment Act 1936 (ITAA 1936). This reasoning is equally applicable in determining whether such profits are assessable under6-5 of the ITAA 1997 as ordinary income. 13) Paragraph 1 of TR 92/3 provides that the term 'isolated transactions' refers to: a) those transactions outside the ordinary course of business of a taxpayer carrying on a business; and b) those transactions entered into by non-business taxpayers. 14) It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. It is sufficient if profit-making is a significant purpose. 15) Paragraph 6 of TR 92/3 and also paragraphs 16 and 35 provide that a profit from an isolated transaction or operation is generally income when both of the following elements are present: a) the intention or purpose of a taxpayer in entering into the transaction was to make a profit or gain; and b) the transaction was entered into, and the profit was made in the course of carrying on a business operation or commercial transaction. 16) Whether an isolated transaction is business or commercial will depend on the circumstances of each case. Where a taxpayer's activities have become a separate business operation or commercial transaction, the profits on the sale of the land can be assessed as ordinary income within section 6-5 of the ITAA 1997. 17) Paragraphs 7, 8 and 9 of TR 92/3 provides guidance in characterising profits on isolated transactions and state: 7. The relevant intention or purpose of the taxpayer (of making a profit or gain) is not the subjective intention or purpose of the taxpayer. Rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. 8. It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. It is sufficient if profit-making is a significant purpose. 9. The taxpayer must have the requisite purpose at the time of entering into the relevant transaction or operation. If a transaction or operation involves the sale of property, it is usually, but not always, necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property. In circumstances where there has been a change of intention in respect of a property from holding the asset as a long term capital asset, to one of selling the asset for a profit the question which arises is whether the sale was a 'mere realisation' of capital asset. 18) Paragraph 13 of TR 92/3 lists some of the matters which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction. However, the entirety of the relevant circumstances is considered on a case by case basis. 19) Paragraph 34 of TR 92/3 states: Nevertheless, there is a strong line of reasoning through the judgments in Whitfords Beach and Myer that suggests that profits made by a taxpayer who enters into an isolated transaction with a profit-making purpose can be assessable income. In Myer , at 163 CLR 213; 87 ATC 4369; 18 ATR 699-700, the Full High Court had this to say about the nature of profits from isolated transactions: 'It is one thing if the decision to sell an asset is taken after its acquisition, there having been no intention or purpose at the time of acquisition of acquiring for the purpose of profit-making by sale. Then, if the asset be not a revenue asset on other grounds, the profit made is capital because it proceeds from a mere realisation. But it is quite another thing if the decision to sell is taken by way of implementation of an intention or purpose, existing at the time of acquisition, of profit-making by sale, at least in the context of carrying on a business or carrying out a business operation or commercial transaction.' 20) Paragraph 36 of TR 92/3 states: The courts have often said that a profit on the mere realisation of an investment is not income, even if the taxpayer goes about the realisation in an enterprising way. The expression 'mere realisation' is used to contradistinguish a business operation or a commercial transaction carrying out a profit-making scheme... 21) Paragraph 41 of TR 92/3 states: The taxpayer must have the requisite purpose at the time of entering into the relevant transaction or operation. If a transaction or operation involves the sale of property, it is usually necessary that the taxpayer has the purpose of profit-making at the time of acquiring the property. ... 22) Paragraph 43 of TR 92/3 states: If a transaction or operation is outside the ordinary course of a taxpayer's business, the intention or purpose of profit-making must exist in relation to the transaction or operation in question. ... 23) Paragraph 44 of TR 92/3 states: It is not our view, nor has it ever been, that all receipts or profits of a business are income. For example, when a taxpayer derives a profit from a transaction outside the ordinary course of carrying on its business and the taxpayer did not enter that transaction with the purpose of making a profit, the profit is not assessable income [under subsection 25(1) of the ITAA 1936]. 24) Example 7, starting at paragraph 85, of TR 92/3 provides an example where taxpayers acquired, through a company, land to ostensibly use for grazing. However, there is no prior history of the taxpayers ever using land in such a way or having experience in grazing. The land was ultimately never used for grazing and the shares in the company were ultimately sold four years later for a profit. In this case, it is considered the profit from the sale was ordinary income. Paragraph 88 of TR 92/3 notes that the appreciation in land value could have been realised in a number of ways - for example, the land could have been sold directly. | Detailed Reasoning - Profit from carrying on a business of BTS property development: 25) It is apparent that the Trust conducted, or was involved in as part of The Group, acquiring investment properties for long term investment as well as property developments with the intention to sell. 26) The Commissioner considers that the intention when The Land was purchased was to develop the property for long term investment. That is, The Land was not part of the BTS property development business. 27) The transaction giving rise to the gain in question was the sale of the Investment Company shares. These shares were sold to dispose of The Land without breaching the PDA. 28) This is not how previous sales of residential premises were conducted. Previously, The Group had made direct sales of completed dwellings. There are no previous instances of The Group selling undeveloped land. In this case undeveloped land was sold through the disposal of shares. This atypical sale is further evidence that this sale was not part of The Group's BTS property development business. 29) As such, the Commissioner does not consider the sale of The Land, via the Investment Company shares, was part of the carrying on of a business of BTS property development. | Detailed Reasoning - Profit from carrying on a business of share trading: 30) The Commissioner considers that the Investment Company shares were acquired with the intention of holding them long term for the ongoing investment in long-term property investments and/or property development activities with the purpose of deriving dividends from these activities. 31) There is nothing to indicate that the Trust was involved in carrying on a business of share trading, or that the Investment Company shares were held with the intention to sell them later at a profit. 32) As such, the Commissioner does not consider the sale of the Investment Company shares was part of the carrying on of a business of share trading. | Detailed Reasoning - Profit from isolated transaction with purpose of profit-making by sale: 33) If the shares were sold as a means to realise gains from a profit-making intention from sale that existed at the time of acquiring The Land, then the sale of the shares may be considered part of the scheme to satisfy that intention. 34) In your circumstances, it is not considered that at the time of acquiring The Land there existed a profit-making intention as described in TR 92/3. The Commissioner considers that the objective evidence substantiates that there was an intention to BTR the developed residential premises on The Land for long term investment. 35) It is apparent that this intention changed. However, this intention changed due to difficulties faced by the project, causing the original intention to become continually less viable. Ultimately, these difficulties resulted in the decision to sell The Land. The way in which the sale of The Land occurred is atypical of The Group. 36) Although paragraph 88 of TR 92/3 explains that the realisation of a profit-making intention from sale can be realised by the sale of share in the company holding the property, your circumstances can be distinguished from Example 7 in TR 92/3 (which contains paragraph 88). 37) In that example the stated intention was not supported by any objective evidence. In your case, there is sufficient evidence to support the stated intention of building to rent The Land site. Furthermore, there is no evidence that at the time of purchase there was an intention to buy and hold the site for later sale. 38) Thus, the Commissioner does not consider that profits from this sale are profits from an isolated transaction with a purpose of profit-making by sale. | Detailed Reasoning - Conclusion: 39) The gain on the sale of the Investment Company shares is not assessable under section 6-5 of the ITAA 1997 as profit/gain made in the ordinary course of carrying on a business or made on an isolated transaction with a purpose of profit-making by sale. | Summary: 40) The gain on the sale of the shares in Investment Company by the Trust is not profit arising from the carrying on or carrying out of a profit-making undertaking or plan which is assessable under section 15-15 of the ITAA 1997. | Detailed Reasoning - Reasoning: 41) Subsection 15-15(2)(b) of the ITAA 1997 relevantly provides that section 15-15 does not apply to a profit that arises in respect of the sale of property acquired on or after 20 September 1985. 42) Both the Investment Company shares and The Land were acquired by the Trust after 20 September 1985. Thus, section 15-15 is not applicable to them. | Summary: 43) The shares in Investment Company are not trading stock for the purposes of section 118-25 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: 44) Subsection 995-1(1) relevantly states: "trading stock" has the meaning given by section 70-10, as modified by section 70-12 of this Act and sections 124ZO and 124ZQ of the Income Tax Assessment Act 1936 . 45) Subsection 70-10(1) states: Trading stock includes: (a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a * business; and (b) * live stock. | Detailed Reasoning - Application to your circumstances: 46) As explained under Question 1, it is not considered that the shares in Investment Company (or the underlying asset, The Land) were held for sale or exchange in the ordinary course of a business. 47) Thus, the Investment Company shares are not considered trading stock. | Summary: 48) The sale of the Investment Company shares by the Trust is a mere realisation of a capital asset and thus subject to the capital gains tax (CGT) provisions under sections 102-5 and 104-10 of the ITAA 1997. | Detailed Reasoning - b) a capital gain arises if the capital proceeds from the disposal are more than the asset's cost base.: 50) Section 118-20 provides that a capital gain from a CGT is reduced if another non-CGT provision includes an amount from the event in your assessable income. Broadly, this will occur where the sale of the asset is treated on revenue account and taxed under provisions including 6-5 and 15-15. | Detailed Reasoning - Application to your circumstances: 51) CGT event A1 occurred when the shares were diposed of. 52) As explained under Question 1, it is not considered that the sale of the Investment Company shares was in the course of carrying on a business or from carrying out a business operation or commercial transaction with a profit-making intention. There are no other grounds that indicate that the Investment Company shares should be considered a revenue asset. 53) Thus, the profit made on their sale is capital because it proceeded from a mere realisation.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement, or to an associated or wider arrangement of which that arrangement is part. | For more information on Part IVA, go to our website ato.gov.au/gaar.