Private ruling: Capital gains tax
Date of advice: 1 March 2019
Published: May 2019
Ruling period: Income year ending 30 June 2018 | Income year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the proceeds from the sale of the subdivided lots be subject to the capital gains tax (CGT) provisions in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The proceeds from the sale of your interests in the lots will not be assessable as ordinary income from carrying on a business or an isolated commercial transaction. Your interests in the subdivided lots are CGT assets. Thus, the proceeds will be subject to the CGT provisions in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q2: Will the proceeds from the sale of the subdivided lots be assessable income under section 6-5 of the ITAA 1997? | A2: No. In your case, the sale of your interests in the subdivided lots will not be assessable as ordinary income from carrying on a business or an isolated commercial transaction, and will not be assessable under section 6-5 of the ITAA 1997.

Relevant facts and circumstances: You negotiated the purchase of a vacant block of land a number of years ago. You took an ownership interest as tenants in common along with two other people you knew. You have provided details of the total cost of the land and the amounts each party contributed. The land was suitable to be subdivided into several lots. You planned to keep one lot and build a house on it to live in. You acquired your slightly larger interest so that you could choose the best and most desirable lot. The land was not brought to account as a business asset. You have never claimed any expenses relating to this land. There is no business organization, manager, office, in regard to your relationship with the other owners of the land. There is only an agreement in the process of sharing costs of the subdivision. Following a legal dispute with the other owners you were forced by a court order to accept the sale of all of the subdivided lots, that is, you were not allowed to select and keep the block of your choice as was originally intended. The lots have been on the market for several months but have not sold. Due to the current state of the market the asking prices for the lots may need to be reduced. After the sale of the lots, you expect to break even or incur a loss. You generally contributed a relevant portion of the costs of the subdivision (in line with your ownership interest).

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3 | Income Tax Assessment Act 1997 Section 6-5