Private ruling: Capital gains tax and GST - property subdivision – two lots
Date of advice: 17 December 2018
Published: April 2019
Ruling period: 17 November 2018 to 30 June 2019
Date scheme commenced: 27 June 2018

Ruling: Q1: Will the profit from the sale of the block of land following the subdivision of the existing property be treated as a capital gain and not as ordinary income? | A1: Yes. The Commissioner considers the proceeds from the sale of the lot will be subject to the CGT provisions in Parts 3-1 and 3-3 of the Income Assessment Act 1997 (ITAA 1997) in this circumstance. | Q2: Will the sale of the land be subject to GST? | 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 property will not amount to an enterprise and the sale of the subdivided lots will not be taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances: You purchased the land after 20 September 1985 and the size of the lots is less than two hectares. The land is zoned residential. The property was purchased for use as a holiday home and never used for investment purposes. There is a house built across the two blocks of land at the one end of the two blocks. A development application was lodged to council for a boundary readjustment to divide the property into two lots. Currently there is a shed on the one of the blocks and the council will require the demolition of the structure as part of the approval of the development application. You propose to sell one block of land as vacant land and retain the other block of land as a holiday home. The preliminary steps and outlay of costs you have undertaken to subdivide the land are: ● engaging in the services of a surveyor to provide advice on subdividing the land ● lodgement of the development application to council ● engineering report to support the development application. The market value of the property that was estimated by a real-estate is over 1 million. You worked in the medical profession but have not been in paid employment for more than 20 years. You have never been involved in the building trade and until now you have had no intention of subdividing the land. You have decided to subdivide the land to fund your retirement income, help assist with funding the education of your relations and retain the other lot as a holiday home.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 112-25