Private ruling: Capital gains tax - subdivision - mere realisation
Date of advice: 7 May 2020
Published: June 2020
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the proceeds from the sale of the subdivided lots be treated as statutory income under the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997? | A1: Yes, the disposal of the subdivided lots will be considered capital transactions subject to the capital gains tax provisions in Part 3-1 and 3-3 of the ITAA 1997. As the Property was acquired prior to 20 September 1985 any capital gain that arises from the disposal of the subdivided lots will be disregarded in accordance with paragraph 104-10(5)(a) of the ITAA 1997.

Relevant facts and circumstances: You purchased a vacant property. At the time of purchase the zoning of the Property was akin to rural residential or park residential. At the time of purchase you built a house on the Property. Since the house was built on the Property it has been your main residence. A long time after the purchase of the Property, under a Planning Scheme, the Property and its surrounds were zoned for low density residential pursuits. The Property is now too big for you to maintain. You are currently looking to sell the Property. You have commenced proceedings to subdivide the Property. Approximately XX years after the purchase of the Property the Development Application (DA) was approved to subdivide the Property. You have since advised us that you intend to subdivide the Property into less lots. One title will remain with the main residence and the others will be sold as vacant land. The title with the main residence will not be sold until all vacant blocks are sold. You have been approached by developers to purchase the land as is (with current development approvals). You have had offers of up to $XXX. After meetings with your advisor you believe if you subdivide the Property yourselves and sell the new lots separately you can maximise the proceeds you receive. You along with your advisor have: · prepared calculations based on splitting the Property in X lots and X lots, with X lots being the better option; · prepared calculations of the costs to subdivide the Property; and · had discussions with real estate agents in relation to what sale prices you could expect to receive for the new vacant lots. As part of the DA approval you need to connect the services (e.g. water, sewer, electricity etc.) to all subdivided lots and provide an access driveway. You have engaged your advisor to help act as a project manager. One of your children will also help with managing the subdivision. You have not previously been involved in activities involving the acquisition, subdivision and sale of subdivided land and have no intention of undertaking any similar project in the future.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 15-15 | Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 112-25 | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3