Private ruling: CGT - deceased estate
Date of advice: 1 May 2026
Published: 10 August 2026
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Is the first element of the cost base of the property equal to the market value of the Property at the date of death of the taxpayer in accordance with Item 2 of the Table to section 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: 1. The Taxpayer held a property consisting of a house and land (the Property). 2. The Taxpayer's family trust acquired the property after DD MM 19Y. 3. The Taxpayer occupied the dwelling on the Property as their main residence from the time it was acquired until 20YY, when the dwelling was demolished. 4. The Taxpayer did not rent the Property or derive assessable income from it. They did not occupy any other dwelling as their main residence during this time. 5. In 20YY, the Taxpayer, with the assistance of professional architects, made an application to the Council to construct an apartment development on the Property (Initial Application). The Initial Application was rejected by the Council due to the height of the proposed construction. 6. Around 20YY, the Initial Application was amended (Second Application). The Second Application was also rejected by the Council due to the height of the proposed construction. 7. Around 20YY, the Taxpayer appealed the Council's decision in respect of the Second Application to the relevant tribunal. The Taxpayer's appeal was successful, and the tribunal approved the plans for the Second Application, and the matter was remitted back to Council. However, the Council refused to endorse the plans, the development could not go ahead at that time. 8. Around 20YY, the Taxpayer engaged with their bank to potentially obtain finance for the Development. 9. In the 20YY-YY financial year, the Taxpayer appealed the Council's refusal to endorse the plans to the tribunal. The tribunal allowed the Taxpayer's appeal, and the Second Application was allowed to proceed. 10. The taxpayer incurred expenses, with respect to the preparation and filing of the project plans to the Council, tribunal costs and other associated project costs. 11. In 20YY, the Council wrote to the Taxpayer advising considering the successful tribunal proceedings, the Council extended the permit for the Second Application development (the Development) and endorsed these plans. 12. The extension required the Development commence by a date in 20YY and be completed X years later. The costs for the project were estimated to be at least $X higher in 20YY than when original costs were estimated in 20YY. 13. The Taxpayer engaged multiple advisors and contractors regarding the Initial Application, Second Application and Development. 14. The Taxpayer: • kept detailed records regarding the Initial Application, Second Application and Development, including a ledger of costs; • undertook projections regarding the estimated costs of construction and the anticipated returns; • undertook feasibility analysis and due diligence regarding projects; and • spent considerable time on the Development, the Initial Application, Second Application and tribunal proceedings. 15. In 20YY, the council approved a development plan and the Taxpayer obtained approval for the demolition. Shortly after this time, the Taxpayer moved out of the dwelling on the Property. 16. The Taxpayer engaged demolition professionals to demolish the dwelling on the Property. The demolition of the dwelling on the Property was completed by DD MM 20YY. 17. After the demolition of the dwelling on the Property, the Taxpayer engaged various professionals, undertook projections, undertook feasibility analysis and undertook due diligence in respect of the project; however, no further works were undertaken on the property, such as initial development works including formwork etc. 18. The number of dwellings the Taxpayer envisaged building on the Property was reduced due to the increasing costs of the original planned Development. 19. The project was delayed due to the Taxpayer's travel in late 20YY, despite ongoing analysis during this period. They engaged multiple consultants before COVID-19, but delays arose from cost pressures requiring reassessment of options. Numerous surveys were undertaken, with costs increasing significantly. As a result, the Taxpayer adjusted the structure and scope of the project in response to increased costs and feasibility concerns. 20. After the project costs were revised, the Taxpayer undertook further cost analysis in respect of changing the development to make it more feasible. This included changing the style of the development and changing the project from a multi-dwelling development to a single- or double-dwelling development. 21. After the demolition in MM 20YY, the Taxpayer continued to obtain quotes and advice for various aspects of the project, including with respect to building surveyance work, environment or sustainability work, geotechnical services and structural and civil engineering. 22. After receiving updated quotes for the various works involved in the Development, which were increased from the original estimates, the Taxpayer undertook work to explore alternative options to make the Development more feasible. 23. The Taxpayer engaged an architecture firm to prepare alternative plans for the Development, which provided for single-dwelling and multi-dwelling options for the Development. 24. In 20YY, the Taxpayer entered into a contract to complete a re-establishment of title survey completed for all boundary lines of the Property. 25. As COVID-19 impacted Australia in the 20YY calendar year, particularly the building and construction industry, external finance became more difficult to obtain. 26. The Taxpayer preferred to meet with their consultants in person rather than via technology-based means of communications, and their ability to consult effectively during the pandemic was limited. Once the pandemic restrictions eased, the Taxpayer arranged for numerous meetings with their consultants regarding the project. 27. The Taxpayer was diagnosed with a medical condition. The Taxpayer's analysis was still ongoing when they received theirs diagnosis. 28. The Taxpayer had not undertaken any similar activity or developments of this nature previously. The Taxpayer did not hold an Australian Business Number. 29. The Taxpayer passed away in the 20YY-YY financial year. Since the Taxpayer's passing in late 20YY, no construction of any new dwelling development on the Property had commenced nor been completed. 30. The Property, vacant land, was sold during the 20YY-YY financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 70-10(1) | Income Tax Assessment Act 1997 section 70-105 | Income Tax Assessment Act 1997 subsection 128-15(4) | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: Subsection 128-15(4) of the ITAA 1997 sets out the cost base rules when a CGT asset you owned devolves to your legal personal representative or passes to a beneficiary of your estate. Item 2 of the table in subsection 128-15(4) provides that for a CGT asset that was trading stock in your hands just before you die, the first element of the cost base or reduced cost base is worked out under section 70-105. Trading stock is defined in subsection 70-10(1) of the ITAA 1997 to include: (a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business; and (b) live stock. The Commissioner's views on when land is treated as trading stock are provided in Taxation Determination TD 92/124 Income tax: property development: in what circumstances is land treated as 'trading stock'? : 1. Land is treated as trading stock for income tax purposes if: (a) it is held for the purpose of resale; and (b) a business activity which involves dealing in land has commenced. 2. Both the required purpose and the business activity must be present before land is treated as trading stock. The business activity is taken to have commenced when a taxpayer embarks on a definite and continuous cycle of operations designed to lead to the sale of the land. Section 995-1 of the ITAA 1997 provides that the term 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. The question of whether a business is being carried on is a question of fact and degree and depends on the impression of a taxpayer's activities considered as a whole. Over the years, the Courts have developed a series of indicators to determine if a business is being carried on. The Commissioner's views on relevant factors used to determine if an entity is carrying on a business are set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? Although TR 97/11 is about primary production, the indicia of carrying on a business developed by the Courts are discussed in this ruling, and apply to this case: • 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 regularity and repetition of the activity • Whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • Whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • The size, scale and permanency of the activity • Whether the activity is better described as a hobby, a form of recreation or sporting activity Whether the Taxpayer had commenced a business of property development or whether the activities undertaken by the Taxpayer were merely preliminary or preparatory to the carrying on of such a business; or whether the business had actually commenced is the critical question. The Commissioner has expressed views on when a business has commenced in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses (TR 2001/14) Paragraph 69A of TR 2001/14 discusses that for a taxpayer to have started to carry on a business activity, this requires the taxpayer to have: • committed to the activity - that is, they had purpose, intention and made the decision to commence the business activity ( Goodman Fielder Wattie Ltd v. FC of T 91 ATC 4438 at 4447 ( Goodman Fielder Wattie ); Softwood Pulp and Paper Ltd v FC of T 76 ATC 4439 (1976) 7 ATR 101 at [4451] ( Softwood ); John Fairfax & Sons Pty Ltd v. Federal Commissioner of Taxation (1959) 101 CLR 30); • acquired the minimum level of business assets to allow that business activity to be carried on; and • actually commenced business operations. A mere intention or desire to carry on a business is insufficient ( Southern Estates Pty. Ltd. v. Federal Commissioner of Taxation [1967] HCA 16; (1967) 117 CLR 481 per Brennan J; McTiernan J and Barwick CJ at 488 on appeal - endorsed by Brennan J in Inglis v. FC of T 80 ATC 4001 at [4004-4005]; (1979) 10 ATR 493 ( Inglis ) at 496-497; Calkin v. CIR [1984] 1 NZLR 440 ( Calkin ); J & R. O'Kane & Co. v. Inland Revenue Commissioners (1920) 12 TC 303 at [347]). Paragraph 97 of TR 2001/14 provides the date of commencement of a business activity is a question of fact, and the nature of the activity said to amount to a business is critical to determining whether that business has actually commenced ( Goodman Fielder Wattie ). In this case, for the business to have commenced, it must be shown that the Taxpayer had committed to the activity, embarking on a definite and continuous cycle of operations designed to lead to the development, subdivision and sale of the land ( Whitfords Beach Pty Ltd v. FC of T 83 ATC 4277; (1983) 14 ATR 247 ( Whitfords Beach ) and Puzey v. Commissioner of Taxation (2003) 53 ATR 614)). In Inglis ,per Davies J (with whom St. John J agreed at [4007-4008]), a lack of certainty as to the use, where there are multiple options for the future use of an asset (in that case the land), was a factor that weighed against a conclusion that a business (of primary production) was carried on at a particular time. In that case, the land may have been used for private purposes, primary production, or alternatively, sale contracts could proceed to allow a family company to undertake a primary production activity. In Softwood , activities relating to the establishment of a paper production operation were considered preliminary to carrying on a business. Menhennitt J found that "the taxpayer never committed itself to go on with the project, never made a final definitive decision to do so." An important fact in the reasoning provided by Menhennitt J was that the taxpayer lacked the capital required to undertake the proposed activity (see also Goodman Fielder Wattie at [4448]). Whitfords Beach examined the issue of the commencement of a business activity and the factors to consider when determining the commencement of a business activity. These factors were a consideration of the taxpayer's purpose and the taxpayer's activities. Bowen CJ, Morling and Fitzgerald JJ said, at ATC 4282; ATR 253: 'Of course, it does not follow that all the activities engaged in by the taxpayer were necessarily in the course of that business or that some of them were not merely preparatory to it. In order to determine when the taxpayer's relevant business commenced and when its land or the various parts of it were committed to or ventured in that business, it is necessary to have regard both to the taxpayer's purposes and to its activities.' Whitfords Beach involved a change of intention and the undertaking of activities which showed a business had clearly commenced. This followed a transfer of share ownership, a change in the directors and a change in the articles of association on 20 December 1967. On the same day, Whitfords Beach embarked on clear course of action which can be said to be the commencement of the business, including contracting general managers to undertake the subdivision and development of the land. Wilson J at [4053] adopted the words from the Federal Court where Deane J stated: It is plain the effect of the transactions and events of 20 December 1967 was completely to transform the sub-stratum of the taxpayer. At the commencement of that day, the taxpayer was a company whose only significant asset was land which had been acquired for the purpose of safeguarding the interests of its shareholders as owners of the Whitford's Beach shacks and which, under the Articles of Association was, when subdivision became possible, to be allocated among the shareholders with any surplus to be dealt with as the company might, in general meeting, decide. At the end of that day, the taxpayer had set out upon a projected course of activity in relation to that land which involved procuring changes of zoning, the development of the subject land as a residential subdivision and the eventual sale, over a period of many years, of the subdivided lots Paragraph 99 of TR 2001/14 explains the Commissioner's view that the question of when a business activity commences is like the question of whether a business is being carried on at all; and depends on the 'large or general impression gained' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551). Paragraphs 100 to 105 of TR 2001/14 also provide the following: 100. The chain of events leading to the commencement or start-up of a business activity often begins with a mere intention to establish the business activity. This is developed by researching the proposed business and, in some instances, by experiment. This process culminates in a final decision on whether to commence business. Not all businesses commence in such an orderly fashion of course. 101. The intention and purpose of the taxpayer in engaging in the activity is relevant to when a business commences. However, a mere intention to commence a business activity is not enough: Goodman Fielder Wattie . The taxpayer must have more than an intention to commence business. There must be activity. In Esso Australia Resources Ltd v. FC of T 97 ATC 4371 at 4382; (1997) 36 ATR 65 at 77-78 Sundberg J stated: 'While the taxpayer may have had the intention ultimately to engage in production, that is not sufficient in itself to constitute a business activity.' Sundberg J went on to say that 'commitment' was missing on the facts of the case. See also Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497. 102. Whitfords Beach Pty Ltd v. FC of T 83 ATC 4277; (1983) 14 ATR 247 is one of the few cases that has examined the issue of the commencement of a business activity and the factors to consider when determining the commencement of a *business activity. These factors were a consideration of the taxpayer's purpose and the taxpayer's activities. Bowen CJ, Morling and Fitzgerald JJ said, at ATC 4282; ATR 253: 'Of course it does not follow that all the activities engaged in by the taxpayer were necessarily in the course of that business or that some of them were not merely preparatory to it. In order to determine when the taxpayer's relevant business commenced and when its land or the various parts of it were committed to or ventured in that business, it is necessary to have regard both to the taxpayer's purposes and to its activities .' (emphasis added) 103. Most business activities have a structure that provides the framework of the business, or their 'profit yielding subject'. It is usually a collection of capital assets. What the particular capital assets are will depend on the particular business activity. In Calkin v. CIR [1984] 1 NZLR 440 Richardson J said at 446-447: 'Clearly it is not sufficient that the taxpayer has made a commitment to engage in business: he must first establish a profit-making structure and begin ordinary business operations .' (emphasis added) 104. For a business activity to commence, an appropriate business structure should also be in place. As to what this structure will consist of, and its size, this will be a question of fact and degree, and depend on the nature of the business activity. A suitable structure might even be established by the execution of certain documents, where independent contractors with the necessary capital assets are engaged. Even though the taxpayer may have no physical assets themselves, their rights as against the independent contractor secure use of such assets, and those rights can properly be said to be capital assets in the taxpayer's hands. However, each case will need to be determined on its own facts and having regard to industry norms. 105. As noted in Inglis , the level of activity is important. The extent of activity will also determine whether a business activity has commenced and is in its start-up phase. Activity will support the taxpayer's claims to have commenced a business activity. Brennan J in Inglis made it clear that there must be activity when he said at ATC 4004; ATR 496: 'The carrying on of a business is not a matter merely of intention. It is a matter of activity . Yet the degree of activity which is requisite to the carrying on of a business varies according to the circumstances in which the supposed business is being conducted. Little activity may suffice for carrying on a business that does not call for much activity, as in Thomas and in Ferguson .' (emphasis added) Brennan J went on to say at ATC 4005; ATR 497: ' At the end of the day, the extent of activity determines whether the business is being carried on. That is a question of fact and degree .' (emphasis added) The level of activity that is required will clearly vary from case to case. Based on the decision in Calkin two different types of activity are relevant: • acquisition of the minimum level of 'business assets'; and • the commencement of 'business operations'. Both are necessary to be able to conclude that a business has commenced. It is contended in the application that the Taxpayer commenced carrying on a business of property development and sale in relation to the Property, such that the Property became trading stock of the Taxpayer. In support of this contention, the Taxpayer submitted that: • the Taxpayer had substantial personal involvement in the planning process, including the preparation and progression of the initial and subsequent planning applications; • the Taxpayer devoted significant personal time to the project, including addressing difficulties encountered during the planning process and proceedings before the tribunal; • the scale of the development ultimately contemplated exceeded the Taxpayer's personal residential needs, suggesting a commercial character; • the project was pursued with an intention to derive a profit and was planned and managed in a structured manner; and • the Taxpayer maintained records and undertook feasibility assessments in an organised way. Having regard to all the available facts and weighing the relevant considerations, the Commissioner considers, on balance, that the Taxpayer did not commence carrying on a business at any time during their period of ownership of the Property, including at the time the existing dwelling was demolished. The key factors supporting this conclusion are outlined below. • The evidence indicates that the Taxpayer continued to consider a range of alternative development options involving different configurations, numbers of dwellings and building heights. While the Council ultimately extended a permit allowing for an apartment development with a car park following successful tribunal proceedings, the Taxpayer did not proceed with that approved option. Instead, planning and feasibility work continued after the demolition of the dwelling. In particular, the architecture firm prepared alternative design concepts in 20YY, including options for townhouses with a basement, a multi-unit development, a single dwelling with a basement, and mirrored townhouses with a basement. • As multiple development options remained under consideration, no subdivision of the land occurred. Further, because a single development option had not been selected, it cannot be concluded that the Taxpayer had committed to a particular development proposal. • No physical development or construction activities commenced on the Property following the demolition of the existing dwelling. • The activities undertaken, including feasibility studies and engagement with consultants such as architects, engineers and builders, are characterised as preliminary steps directed toward assessing whether a development should proceed. The evidence indicates that these parties were consulted for the purpose of obtaining advice and quotations, rather than being engaged under binding contracts to undertake development works. The only documented engagement involved survey work relating to the reestablishment of the Property's land title. While the Taxpayer incurred costs for professional services, including architectural plans, those services were directed toward planning and feasibility rather than the execution of an identified development. • Discussions with service providers were exploratory in nature and undertaken to inform feasibility assessments and indicative budgeting, rather than to implement a committed development project. • Although the Taxpayer had dealings with the bank in relation to potential finance, there is insufficient evidence to demonstrate that finance had been secured, or that the Taxpayer could secure finance, to undertake a specific development. Given that multiple development options were still under consideration, the Taxpayer's potential financing requirements remained uncertain and dependent on the option ultimately selected. Taken together, the activities undertaken during the Taxpayer's ownership of the Property are properly characterised as preliminary and preparatory in nature. While there was an intention to undertake a development following the demolition of the former residence, the evidence does not establish that the Taxpayer had committed to the commencement of a business or embarked on a definitive and continuous course of operations directed toward the development, subdivision and sale of the Property. Accordingly, when viewed as a whole, the Taxpayer's activities are more appropriately described as steps taken to place the Taxpayer in a position to undertake a potential development, rather than the carrying on of a business of property development. This conclusion is consistent with the reasoning in Softwood, Inglis and Goodman Fielder Wattie . It follows that a business of property development had not commenced. As the Taxpayer did not carry on a business of property development, the Property did not become trading stock at any time. Accordingly, the Property was not held as trading stock following the Taxpayer's death, and the first element of its cost base is not its market value at the date of death under Item 2 of the table in subsection 128-15(4) of the ITAA 1997. The first element of the cost base of the Property will be the Taxpayer's cost base at the date of their death, under item 1 of the table in subsection 128-15(4) of the ITAA 1997, as the Property was acquired on or after DD MM 19YY, and is not covered by item 2, 3, 3A or 3B.