Private ruling: subdivision of land
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Are the proceeds from the sale of your subdivided land assessable under section 6-5 or section 15-15 of the ITAA 1997? | A1: No. | Q2: Are the proceeds from the sale of your subdivided land subject to the CGT provisions in Part 3-1 of the ITAA 1997? | A2: No.

Relevant facts and circumstances: You purchased a block of land prior to 20 September 1985. You sold off a portion of land with the original house on it. You built a new house on the remaining land in which to reside and continue hobby farming. You did not purchase the land with any intention to subdivide and sell. Over the years the town has extended to surround your land. You received an offer for the land from a property developer. The land would be sold on a delayed settlement basis. You thought the offer was unreasonable given the current value of residential blocks in the area. You propose to subdivide the land into 25 residential blocks in order to gain the maximum price for your land. You will only co-ordinate the project. You will use professionals for all aspects of the initial council approval and subsequent development and sale. You will use the services of engineers, planners, earthmoving contractors and real estate agents. This will be a one-off activity. You have never developed land before and will never do it again. You have retired and your main source of income is now from investments. Due to your age you wish to reduce your landholding and the physical responsibilities that go with it. You plan to retain a portion of the land around your home and continue residing there. There are no other finance or joint venture parties involved in the project.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5, | Income Tax Assessment Act 1997 section 15-15, and | Income Tax Assessment Act 1997 section 104-10(5).

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts. Typical examples of ordinary income include salary and wages, proceeds from carrying on a business, rent, interest and dividends. Profits from the sale of a capital asset are generally not income, although they may be assessable as statutory income under the capital gains provisions. Section 15-15 ITAA 1997 provides that your assessable income also includes profit arising from the carrying on, or carrying out, of a profit-making undertaking or plan. Subsection 15-15(2) goes on to say that this section does not apply to a profit that is assessable as ordinary income under section 6-5 or arises in respect of the sale of property acquired on or after 20 September 1985. Taxation Ruling TR 92/3 (TR 92/3) deals with determining whether profits on isolated transactions are income. According to TR 92/3, a profit from an isolated transaction is generally income if the intention or purpose of the 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 or in carrying out a business operation or commercial transaction. Having regard to your full set of circumstances and the factors outlined above, it is considered that the profit which is derived from the subdivision and subsequent sale of the land is not assessable as ordinary income. Further, we do not consider that the profits derived were as a result of a profit making undertaking. Therefore, the profits are not assessable under section 15-15 of the ITAA 1997. You acquired the land before 20 September 1985. Therefore, the proceeds from the sale of the subdivided land are exempt from the CGT provisions in Part 3-1 of the ITAA 1997.

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