Private ruling: Capital versus revenue
Date of advice: 11 July 2019
Published: September 2019
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020

Ruling: Q1: Will the proceeds from the sales of the lots be considered a mere realisation of a capital asset? | A1: Yes. On balance, it is considered that the proceeds from the sale of the lots will be subject to the CGT provisions in Parts 3-1 and 3-3 of the Income Assessment Act 1997 (ITAA 1997).The sale of the lots will be regarded as a mere realisation of a capital asset. Proceeds from the sale of the lots will not be assessable as ordinary income under section 6-5 of the ITAA 1997. | Q2: Is the sale of the lots a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A2: No. Having applied all the principles in Miscellaneous Taxation Ruling MT 2006/1 to the present circumstances, we conclude that the sale of the subdivided lots will not be a taxable supply pursuant to section 9-5 of the GST Act 1999.

Relevant facts and circumstances: You and your spouse acquired a residential property a number of years ago. When the property was acquired it was planned to the dwelling for investment purposes. You planned to eventually redevelop the property and use part of it for main residence purposes in the future. The property was in a rundown condition which reduced the market value and made the property affordable, convenient and in a well-connected location. You made significant improvements to the property with the intention of using the dwelling as a long-term rental and included pest control and repairing structural damage. The property was used for rental purposes for a number of years. While tenanted, you encountered significant issues with the property. The issues that were present impacted on the structural integrity of the dwelling and this was confirmed by a professional's inspection. In view of the ongoing concerns raised by the tenants and the report form the professional it was apparent the long term viability of the property was under question. You decided as result of the ongoing issues with the dwelling and duty of care towards the tenants to the early termination of the rental agreement. Due to the growing issues with the property, you decided that to continue repairing the property would not be financially viable and decided to demolish the dwelling. In line with the redevelopment policy from Council you built a double duplex. You would then move into one of the dwellings as your main residence. You have provided details of the projected rental returns from the other dwelling which would be tenanted. You borrowed some funds to help pay for the required works. However, due to your situation, and after consideration of the needs of your family and the financial strain of the development, it was not feasible to own and manage the dwellings. You have evidence of the costs, loans, and budget forecasts. You have also provided details of the sale price of the lots. Based on the figures, the net proceeds are minimal. You and your spouse have never been involved in property development and will not be involved in any further development activities.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 112-25 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1