Private ruling: Income tax - capital gains tax - small land subdivision - capital vs revenue
Date of advice: 3 August 2020
Published: September 2020
Ruling period: Year ended 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025
Date scheme commenced: 1 July 2019

Ruling: Q1: Will your share of the proceeds or profit from the sale of the subdivided lots be included in your assessable income as a result of carrying on a business of property development or as a result of an isolated business transaction? | A1: No. You are not considered to be carrying on a business of property development, or to be carrying on or carrying out a profit-making undertaking or plan. You are merely realising your capital asset. As such, the proceeds or profit from the sale of the subdivided lots will not be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), or as a profit from an isolated transaction under section 15-15. | Q2: Will your share of the proceeds from the sale of the subdivided lots represent capital proceeds for the disposal of a capital asset? | A2: Yes. Any proceeds from the sale of your ownership interest in the land represents a mere realisation of a capital asset which will fall for consideration under the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997.

Relevant facts and circumstances: You and your spouse jointly acquired a rural property in 20XX to use in a business and to build your main residence. You used the property in your business for X years. Your main residence was built on the property in 20XX. You first attempted to sell the property as one parcel in 20XX. There was some interest in the property but interested party withdrew and there was no further interest. You also tried to attract a developer with no success. You made further efforts to dispose of the property over the years including trying to attract a developer. Under significant financial stress you contacted the local Council to seek their advice. Council advised that as the property is zoned rural but surrounded by rural residential properties, they would consider an application to subdivide the rural land into smaller rural lots. With increasing financial pressure, decreasing capacity to maintain the property and to assist with providing for your retirement you felt that you had no other option other than to subdivide the land and lodged a Development Application (DA). You engaged a professional to assist you with the process. You and your spouse are both retired and have had no previous experience with property development. The DA to subdivide the property into X rural lots was approved by Council. You will retain a larger lot where your residence is located and propose to sell the remaining subdivided lots. The works will only entail the minimum required by Council under the DA. No site office or other buildings will be erected on the land during construction and sales. You will maintain the lots. You will fund the project and works will only commence when presales are secured. You will keep adequate financial accounts in relation to the project. All payments will be approved and paid by you. A local real estate agent has developed a marketing plan and will undertake all advertising, marketing and sales. Sales of the subdivided lots could take up to X years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 15-15 | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3