Private ruling: Real property sale - Revenue vs Capital
Date of advice: 24 February 2026
Published: 20 April 2026
Ruling period: Year ended 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Will the proceeds from the sale of vacant land is assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: The Trust acquired a property with an existing dwelling at a relevant date. The property was purchased for the purpose of constructing residential units for sale at a profit. The Trust borrowed funds to finance the purchase. The Trust does not own any other properties and has not previously undertaken any property development activities. A development application (DA) was lodged by the Trust and approval was granted by the local council for the for the construction of five residential units at the relevant date. Due to financial constraints and the simultaneous progression of other construction projects undertaken by a related entity, the Trust has decided to defer the commencement of the project. The project was further delayed by COVID-19 lockdowns and increased construction costs resulting from material and labour shortages. A DA extension was granted by the local council extending the currency period. Despite the DA approval and extension, no development activity was carried out on the property. The Trust's ABN was cancelled at the relevant date, and the property was subsequently sold as vacant land a month later. The Trust incurred costs in relation to the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 section 108-5

Reasons for decision: Summary: All legislative references in this Ruling are to the Income Tax Assessment Act 1997 , unless otherwise indicated. Under subsection 6-5(2), your assessable income includes income according to ordinary concepts (known as ordinary income) derived directly or indirectly from all sources, during a relevant financial year. Under section 6-10, your assessable income also includes certain amounts that are not ordinary income but are included in your assessable as statutory income. Broadly, there are three ways the proceeds from a sale of the property can be treated for taxation purposes: • as ordinary income under section 6-5 as a result of carrying on a business of property development, involving the sale of land as trading stock; • as ordinary income under section 6-5 as a result of an isolated 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; or • as statutory income under the capital gains tax (CGT) legislation, from a mere realisation of a capital asset, assessable under Parts 3-1 and 3-3 in accordance with section 6-10. Whether the proceeds are treated as income or capital will depend on the situation and circumstances of each case. | Detailed Reasoning - Carrying on a business of property development: In determining whether the proceeds from the sale of the property are income from carrying on a business, income from an isolated business or commercial transaction with a view to profit, or the mere realisation of an asset no single factor will be determinative; rather, it will be a combination of factors that will lead to a conclusion as to the character and nature of the activity from which the income is derived. The presence of a significant commercial purpose, a genuine profit-making intention, repetition or regularity of activities and the organization of operations in a businesslike manner - are not individually decisive but are assessed collectively to form an overall picture. The question of whether you are carrying on a business of property development is discussed below. 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. Paragraph 13 of TR 97/11 states that the following indicators are relevant in determining whether a taxpayer is carrying on a business: • whether the activity has a significant commercial purpose or character; • whether the taxpayer has more than just an intention to engage in business; • whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; • 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. No one factor is decisive. 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 - Application to the taxpayer's circumstances: On the facts provided, the overall impression gained is that the Trust is not carrying on a business of property development for the following reasons: • The Trust purchased the property and obtained development approval to construct residential townhouse units. Whilst the intention was to construct the residential units and sell for profit, the proposed project did not progress due to financial constraints experienced by the Trust and continuing COVID-10 lockdowns. • Apart from demolishing the existing building, no activity was undertaken before the Property. The development project was abandoned and the Trust decided to sell the Property in April 2024. • The Trust was not involved in any other property development activity or any other commercial profit-making undertaking. In view of the above, the Commissioner has determined that the proceeds from the sale of the Property are not assessable as ordinary income under section 6-5. | Detailed Reasoning - Isolated profit-making transaction: 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 under section 6-5 as ordinary income. Paragraph 1 of TR 92/3 provides that the term 'isolated transactions' refers to: • those transactions outside the ordinary course of business of a taxpayer carrying on a business; and • those transactions entered into by non-business taxpayers. 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. 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: • the intention or purpose of a taxpayer in entering into the transaction was to make a profit or gain; and • the transaction was entered into, and the profit was made in the course of carrying on a business operation or commercial transaction. 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. Paragraphs 7, 8 and 9 of TR 92/3 provides guidance in characterising profits on isolated transactions and states: 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. 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, they include: • the nature of the entity undertaking the operation or transaction; • the nature and scale of other activities undertaken by the taxpayer; • the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; • the nature, scale and complexity of the operation or transaction; • the manner in which the operation or transaction was entered into or carried out; • the nature of any connection between the relevant taxpayer and any other party to the operation or transaction; • if the transaction involves the acquisition and disposal of property, the nature of that property; and • the timing of the transaction or the various steps in the transaction. 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. At paragraph 41 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. Further at paragraph 43 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. | Detailed Reasoning - Application to the taxpayer's circumstances: A transaction will constitute a profit-making undertaking where (1) the taxpayer entered into the transaction with a purpose or intention of making a profit, and (2) the transaction was carried out in a businesslike or commercial manner. In your case, in determining whether the sale proceeds will be viewed as a profit-making undertaking, the following observations have been made: • The Trust has not been involved in property development activity. • The work carried out on the property by the Trust was limited to demolishing the existing house and obtaining DA approval. • No further activity was undertaken on the property between its acquisition and subsequent sale. • There was lack of profit-making motive when the Trust decided to sell the Property as vacant land. The project was abandoned due to financial constraints, and the property was sold after the Trust cancelled its ABN. Based on the above, the Commissioner considers that the sale of the property does not constitute an isolated profit-making transaction. Accordingly, the sale proceeds will not be assessable as ordinary income under section 6-5. | Detailed Reasoning - Mere realisation of a capital asset: Under section 6-10, assessable income also includes statutory income. Capital gains are included as assessable income under section 102-5. Section 102-20 advises that you can make a capital gain or loss if and only if a CGT event happens to a CGT asset that you own. CGT event A1 under section 104-10 happens if you dispose of a CGT asset. Pursuant to section 108-5, a CGT asset is any kind of property, or a legal or equitable right that is not property. Land, or an interest in land, is a CGT asset. Subsection 104-10(4) provides that a capital gain will arise if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if the capital proceeds from the sale of a CGT asset are less than the asset's reduced cost base. As a general rule, taxpayer is required to include in their assessable income any capital gain they make from a CGT event that happens to a CGT asset the taxpayer acquired on or after 20 September 1985. | Detailed Reasoning - Application to the taxpayer's circumstances: The original intention for the purchase of the property was to construct residential units and to sell for profit. However, no activity has been undertaken on the property since its purchase. The Trust's ABN was cancelled on a specified date and the property was disposed of the following month. The Commissioner considers that the sale of the property represents a mere realisation of a capital asset. Accordingly, the proceeds from the sale of the property are assessable as statutory income under the CGT provisions in Part 3-1. The sale of the Property is a disposal which gives rise to CGT event A1 under subsection 104-10(2).