Private ruling: Property development - vacant land
Date of advice: 20 May 2026
Published: 3 August 2026
Ruling period: Income year ending DD MM 20YY | Income year ending DD MM 20YY | Income year ending DD MM 20YY | Income year ending DD MM 20YY | Income year ending DD MM 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the sale of the X units constitute a mere realisation of the property such that the tax liability is solely determined under the capital gains tax (CGT) provisions in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: If the answer to question 1 is 'yes', does the main residence exemption under subdivision 118-B of the ITAA 1997 apply in relation to the CGT events arising from the sale of the X units? | A2: Not applicable. | Q3: If the answer to question 1 is 'yes' and the answer to question 2 is 'no', does the CGT discount under subdivision 115-A of the ITAA 1997 apply in relation to the CGT events arising from the sale of the X units? | A3: Not applicable. | Q4: Will the proceeds from the sale of the X units be assessable as ordinary income under section 6 - 5 of the ITAA 1997? | A4: Yes. | Q5: If the answer to question 4 is 'yes', in calculating the profit from the sale, is the cost of the vacant land its market value at the time its legal title was transferred to you? | A5: Yes.

Relevant facts and circumstances: Your parent owned a residential property and an adjoining vacant block under separate titles since before 20YY, with a combined area under X. X properties were always used together for private family purposes. The residence was their principal place of residence until they entered aged care in DDMMYYYY. Due to aged-care costs (including a refundable accommodation deposit of $X paid in 20XX) exceeding their passive income, your parent and their adult children devised options to generate income from the vacant land. The preferred option was construction of attached X to generate rental income. The vacant land could only be developed as a single dwelling or attached X under local planning controls. Subdivision could only occur after construction. You commenced the Complying Development Certificate (CDC) approval process in MMYYYY, but progress was delayed due to personal reasons. Your parent passed away on DDMMYYYY. Under their estate, you inherited the residence and vacant land in equal shares. Probate was granted on DDMMYYYY, title transferred on DDMMYYYY, and the vacant land was valued at $X for probate purposes. The CDC approval to construct the X was granted on DDMMYYYY. No construction has commenced. In 20XX, you decided to sell the vacant land without development due to ongoing maintenance costs and lack of income. The land was marketed with an initial asking price of $X, later reduced to approximately $X, but no acceptable offers were received. Offers between $X and $X were rejected as materially below market value, based on comparable sales in the area. Market feedback indicated reduced demand for undeveloped land due to the block's irregular shape and proximity to a major arterial road. By contrast, real estate advice suggested strong demand for newly completed, turnkey X among owner-occupiers. As an alternative disposal strategy, you investigated constructing the approved X, subdividing them into X Torrens title lots, and selling them. Based on indicative construction costs (approximately $X inclusive of GST), professional fees and subdivision costs, they estimate a higher net return of approximately $X compared with the highest undeveloped land offer of $X. If construction proceeds and the X are sold, you will consider applying the margin scheme if available and financially advantageous. You are not professional property developers. Person A has limited prior experience with residential subdivisions on isolated occasions; Person B has no such experience. There is no formal partnership agreement, and any financing would likely be sourced against property equity. Assumption The vacant land will not be treated as trading stock.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 subdivision 118-B | Income Tax Assessment Act 1997 subdivision 115-A | Income Tax Assessment Act 1997 section 6 - 5 | Income Tax Assessment Act 1997 section 15-15

Reasons for decision: Summary: Your activities in relation to the planned development were more than the mere realisation of your asset, being an isolated transaction, which has the character of a business operation or commercial transaction. The profit arising from the planned sale of the X units, will be ordinary income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Treatment of profits from land development: Broadly, profits from land development, subdivision and sale can be treated for income tax purposes in the following three ways: • as ordinary income under section 6-5 (revenue account) resulting from the carrying on a business of property development; • as ordinary income under section 6-5 or section 15-15 (revenue account) resulting from an isolated business or commercial transaction entered into by a non-business taxpayer, or outside the ordinary course of business of a taxpayer carrying on a business, which is the commercial exploitation of an asset acquired for a profit-making purpose; • as statutory income under the CGT legislation (capital account). | Detailed Reasoning - Carrying on a business of property development: Section 995-1 states the term 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law. In the High Court of Australia case of Hope v. Bathurst City Council (1980) 144 CLR 1; (1980) 29 ALR 577; (1980) 80 ATC 4386; [1980] HCA 16, a business was described in the following ways: It is the words "carrying on'' which imply the repetition of acts and activities which possess something of a permanent character. ...activities engaged in for the purpose of profit on a continuous and repetitive basis. Transactions were entered into on a continuous and repetitive basis for the purpose of making a profit...manifested the essential characteristics required of a business. The Commissioner's view on whether a taxpayer is carrying on a business is found in Taxation Ruling TR 97/11 which uses the following indicators to determine whether a taxpayer is carrying on a business: whether the activity has a significant commercial purpose or character • whether there is repetition and regularity of the activity • 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 • whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit • the size, scale and permanency of the activity; and • whether the activity is better described as a hobby, a form of recreation or a sporting activity. 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 large or general impressions gained from looking at all the indicators and whether these indicators provide the operations with a commercial flavour. | Detailed Reasoning - Application to your circumstances:: Based on the facts provided, you are not considered carrying on the business of property subdivision or selling properties. | Detailed Reasoning - Section 15-15 of the ITAA 1997: Paragraph 15-15(2)(b) of the ITAA 1997 provides that section 15-15 of the ITAA 1997 does not apply to the sale of property that is acquired on or after 20 September 1985. In your case, you inherited the ownership interest on the vacant land after 20 September 1985. Therefore, you are deemed acquired the property after this date; this provision does not apply to you. | Detailed Reasoning - Profits on isolated profit-making scheme: Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) provides guidance in determining whether profits from isolated transactions are income and therefore assessable under section 6-5 of the ITAA 1997. 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. Whether a profit from an isolated transaction is income according to the ordinary concepts and usages of mankind depends very much on the circumstances of the case. However, a profit from an isolated transaction is generally income when both of the following elements are present: a. the intention or purpose of the 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 or in carrying out a business operation or commercial transaction. 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. 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. 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. 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. Paragraph 36 of TR 92/3 notes that 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 ( Myer at 163 CLR 213; 87 ATC 4368-4369; 18 ATR 699-700). | Detailed Reasoning - Application to your circumstances:: In this case, the vacant land was used as part of your parent's private residence. After that, as part of your parent's retirement income generating planning, you devised a plan to venture into developing the vacant land. From the point of inheritance, you have an intention to continue with the development. The nature of the vacant land changed from being part of a private residence to development of X units located on each of the planned subdivided lots for sale. You did not have any plans to live in either of the units, nor did you have any plans to rent either unit, with the intention to sell both of them. The vacant land would be considered being developed for the purpose of sale. While you engaged the services of professionals in relation to various aspects of the planned development, you retained the control as the final decision makers with respect to the planned development. Your activities were more of a commercial nature than a mere sale or subdivision and sale of one vacant block. If you were to undertake such development activities as part of a repetitious or recurring transactions, they would constitute the carrying on of a business. It has been projected that the total sale profits for the X units are substantially more than the market value of the vacant land. There is an intention to make a profit, rather than the sale being a capital transaction to realise the value of the vacant land. In an overall assessment on the factors set out in TR 92/3, we are of the view that your activities in relation to the planned development were more than the mere realisation of your asset, being an isolated transaction, which has the character of a business operation or commercial transaction. By seeking to achieve a higher sale price by continuing with the planned development, it is viewed that you had a profit-making motive which can occur regardless of whether a profit or loss is ultimately made. | Detailed Reasoning - Conclusion: It can therefore be concluded that, the profit arising from the planned sale of the X units, will be ordinary income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Question 2: If the answer to question 1 is 'yes', does the main residence exemption under subdivision 118-B of the ITAA 1997 apply in relation to the CGT events arising from the sale of the X units? | Summary: As the answer to question 1 is 'no', the main residence exemption is not applicable. | Detailed Reasoning - Question 3: If the answer to question 1 is 'yes' and the answer to question 2 is 'no', does the CGT discount under subdivision 115-A of the ITAA 1997 apply in relation to the CGT events arising from the sale of the X units? | Summary: As the answer to question 1 is 'no', CGT discount is not applicable. | Detailed Reasoning - Question 4: Will the proceeds from the sale of the X units be assessable as ordinary income under section 6 - 5 of the ITAA 1997? | Summary: As discussed in question 1, the proceeds from the sale of the X units will be assessable as ordinary income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Question 5: If the answer to question 4 is 'yes', in calculating the profit from the sale, is the cost of the vacant land its market value at the time its legal title was transferred to you? | Summary: We believe it is reasonable to accept its market value at the time its legal title was transferred to you as the cost when determining any net profit assessable as ordinary income. | Detailed Reasoning - Detailed reasoning: When calculating any net profit assessable under section 6-5, the market value (when ventured into the profit-making scheme) of the vacant land attributable to the development is treated as a cost. This question assumes that the vacant land will not be trading stock, and any net gain would be assessed as ordinary income under section 6-5 of the ITAA 1997 based on the principles in TR 92/3. An example in Taxation Determination TD 97/1 Income tax: property development: if land, originally acquired as a capital asset, is later ventured into a business of development, subdivision, and sale, how is the market value of the land calculated at the time it is ventured into the business? (TD 97/1) indicates the ATO view on determining the cost of land ventured into a development business. A taxpayer acquired property as a capital asset, but later ventured it into a business of developing and subdividing land. In calculating the net profit on sale, the TD says the taxpayer should take into account an appropriate proportion of the market value of the land when it was ventured into the business. The market value should take into account its potential for subdivision and the probability of obtaining the relevant consents. We think the same approach applies when determining an assessable net profit from an isolated profit-making scheme that is not characterised as a business. As you devised a plan to venture into developing the vacant land, it follows that you inherited the ownership interest of the vacant land and planned to continue with the development, it is reasonable to accept its market value at the time its legal title was transferred to you as the cost, when determining any net profit assessable as ordinary income.