Private ruling: Property development
Date of advice: 11 February 2026
Published: 30 March 2026
Ruling period: Period ended DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Will the sale of the townhouse at Property B be taxed on capital account and be subject to capital gains tax? | A1: Yes. | Q2: Have you made a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sold your townhouse at Property B? | A2: No. You did not make a taxable supply under section 9-5 of the GST Act as you were not registered or required to be registered for GST.

Relevant facts and circumstances: You are married to each other. You are both retired and around X years of age. On DD MM YY you entered into a contract of sale for Property A and Property B. The two properties were acquired for $X each. You acquired both properties as joint tenants. Your intention at the time of the purchase was to demolish the existing dwellings and build two new townhouses. One would be your home, and the other would be a long-term rental to help fund retirement. On DD MM YY you engaged Architect Firm A to design new townhouses for the properties and to obtain the required permits for construction. On DD MM YY the planning permit was lodged with the relevant council and was later granted on DD MM YY. On DD MM YY settlement of the properties took place. The purchase of the properties was funded by your own money, having sold your previous home at Address A for $X, which also settled in MM YY. Your plan was to fund construction of the townhouses using the remainder of the funds from the sale of your previous home. On DD MM YY you moved into rental accommodation at Address B. Both properties were leased from the settlement date. • The dwelling at Property A was leased from DD MM YY to DD MM YY. • The dwelling at Property B was leased from DD MM YY to DD MM YY. In MM YY demolition of the existing dwellings began, and the land remained vacant until construction commenced in MM YY. On DD MM YY you engaged Building Firm A to assist in getting plans and permits in order to proceed with the project. The contract was on a cost-plus basis. With the initial estimate for costs provided by the architect in YY, you had planned to fund the construction from your own money. A budget prepared by the new building firm in YY confirmed this was still possible. Construction began, funded as planned from your own money. However, labour and materials costs increased as a result of the Coronavirus pandemic and you found yourselves needing to source additional funds to complete construction. You initially drew down on an established mortgage account that had been previously paid out, withdrawing $X from this to fund the continuing construction costs. In MM YY, when these funds were fully utilised, you sold an investment property held in your Self-Managed Super Fund (SMSF) for $X. You subsequently withdrew $X in YY and the balance of $X in YY to fund continuing construction. Your SMSF was wound up. In MM YY you moved into the completed Property A townhouse. An occupancy certificate issued on DD MM YY. The additional funds were insufficient to complete construction of Property B and you approached Bank A with a request to either increase your mortgage or take a separate mortgage on Property B. You provided Bank B with two estimates from real estate firms showing that Property B was reasonably expected to derive $X per week in rental income, which would cover the mortgage and living expenses, but Bank A declined both options. Bank A provided a conditional counteroffer loan of $X to allow the construction of Property B to be completed, on the conditions that the property be listed for sale on the open market immediately after construction was complete. Bank A also required that the asking price be adjusted to 'meet the market' in accordance with their stipulated timeframe of sale. You accepted Bank A's conditional counteroffer. Construction of the townhouse at Property B was completed and on DD MM YY an occupancy certificate was issued. You engaged a real estate firm to sell the townhouse at Property B. On DD MM YY a contract of sale was signed. On DD MM YY settlement took place. The townhouse at Property B sold for $X. You paid the balance of the Bank A loan of $X. You realised a profit of about $X. You engaged professionals, including designers, town planners, builders, and estate agents to manage all aspects of the property development and the sale of Property B. You were not personally involved in the property development activity and sale. You have not engaged in, or been involved in, any property development related activities in the past, and you have no previous dealings in property development nor experience. No rezoning occurred as the properties were already zoned as residential. The construction costs for each townhouse were about $X.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 102-5 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-20 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 23-15 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 section 188-10 | A New Tax System (Goods and Services Tax) Act 1999 section 188-20 | A New Tax System (Goods and Services Tax) Regulations 2019 section 23-15.01

Reasons for decision: Summary: The isolated transaction that is the disposal of the asset Property B is not a profit-making undertaking but is instead the mere realisation of a capital asset. | Detailed Reasoning - Detailed reasoning: As a general principle, profits from property sales will either be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) or statutory income under the capital gains tax (CGT) provisions of the ITAA 1997. Where the profit has been made as a result of a taxpayer carrying on a business of property development or as a result of a taxpayer entering into an isolated business transaction, the profit will be assessable as ordinary income. However, where the profit is a mere realisation of a capital asset, the profit will be assessable under the CGT provisions of the ITAA 1997. There have been several cases in which the courts have addressed the question of whether the proceeds received for the sale of an asset are revenue or capital in nature. The decision in each case depended on its own facts, and very often will be a matter of degree. The extent of the personal involvement of the taxpayer in much of the planning, organisation and management of the activities has been held to be significant factors in the determination of whether or not a business was being carried out. For example: • In Stevenson v FC of T (1991) 91 ATC 4476; (1991) 22 ATR 56; (1991) 29 FCR 282 (Stevenson) the degree of the taxpayer's involvement was seen as an indicator of a business being conducted; and • The lack of personal taxpayer involvement was seen as a relevant to the finding that a business was not being conducted in the cases of Stratham V FCT 89 ATC 4070, McCorkell v FCT 98 ATC 2199 (McCorkell) and Casimaty v FCT 97 ATC 5 (Casimaty). From the cases involving the subdivision of land and from Taxation Ruling TR 92/3 (TR 92/3), it would appear that the following are the most important factors to consider when determining whether profits made as a result of an isolated business transaction are assessable income: (a) the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain; and (b) 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. In determining whether an isolated transaction amounts to a business operation or commercial transaction the following factors are relevant: (a) the nature of the entity undertaking the operation or transaction; (b) the nature and scale of other activities undertaken by the taxpayer; (c) the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained; (d) the nature, scale and complexity of the operation or transaction; (e) the manner in which the operation or transaction was entered into or carried out; (f) the nature of any connection between the relevant taxpayer and any other party to the operation or transaction; (g) if the transaction involves the acquisition and disposal of property, the nature of that property; and (h) the timing of the transaction or the various steps in the transaction. The courts have often said that a profit on the mere realisation of an investment is not income, even if the taxpayer goes about the realisation in an enterprising way. However, if a transaction satisfies the elements set out above it is generally not a mere realisation of an investment. | Detailed Reasoning - Application to your circumstances: You signed contracts of sale on the two side by side properties in late YY. Both were blocks of land with older dwellings on them. You intended to demolish the older dwellings, build two new townhouses, move into one as your retirement home and rent the other to fund the rest of your retirement. You engaged and worked with third party builders throughout the process, engaging them to submit all plans and permit applications. Your direct involvement was minimum. You funded the purchase with the sale of your old home and budgets prepared by two separate architect/building firms found that you had enough left to fund construction of the two townhouses. The two older dwellings were demolished and construction began in MM YY. The Corona Virus pandemic hit and this had a significant impact on the construction industry with transport restrictions and a shortage of materials and labour that led to notable increases in the cost of construction. Increased costs meant that you were no longer able to completely fund the construction of the townhouses from the remaining funds from the sale of your former home. You tapped into other financial resources available to you and construction of the townhouse at Property A was completed, allowing you to move in. But you had insufficient funds to complete construction of Property B. Your available option was to approach your bank for a mortgage on the property and you presented two prepared estimates to your bank, of how much rent you would receive from the property that would allow you to pay the mortgage and live. You were in your late X's at this time. The bank declined and were only willing to lend you sufficient funds to complete construction on the condition that the property was sold on the open market as soon as construction was complete. You had no other option but to accept these terms and once construction was complete, the townhouse at Property B was sold, allowing you to repay the mortgage in full. Your intent was never to sell make a profit. At the time of purchase, you planned to retain ownership of both properties. This intent remained unchanged through construction of Property A and the beginning of construction of Property B. It was only through unforeseen circumstances and the conditions imposed on you by the bank, that the property was sold. Based on the information provided, there is nothing to suggest that the sale of the property was part of a business undertaking. Your activities do not display the salient indicator of a business, being transactions entered into on a continuous and repetitive basis. Therefore, it is the Commissioner's view that your activities in relation to the sale are not those of an entity carrying on a business. Making an overall assessment on the factors set out in TR 92/3, it is the Commissioner's view that the sale of Property B will not be considered commercial in nature, but will be a realisation of a capital asset. In conclusion, the activities involved in the sale of the property will not amount to carrying on a business. There is also no indication that the sale of the property was carried out with a profit-making undertaking or plan. Therefore, as it is not viewed that you are carrying on a business, or that sale was an isolated profit-making transaction, it will a mere realisation of an asset which will be accounted for under the capital gains tax provisions. | Detailed Reasoning - Issue: GST and sale of property | Detailed Reasoning - Question: Have you made a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sold your townhouse at Property B? | Summary: No. You did not make a taxable supply under section 9-5 of the GST Act as you were not registered or required to be registered for GST. | Detailed Reasoning - Detailed reasoning: A supply is taxable under section 9-5 of the GST Act if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. You satisfy subsections (a) and (c) of section 9-5 of the GST Act because you received consideration when you sold 96 Sutherland Road in Australia. No GST-free provision applies. The sale was a supply of new residential premises within the meaning of section 40-75 of the GST Act and therefore is not input taxed under section 40-65 of the GST Act. We therefore address whether you made the supply in the course or furtherance of an enterprise and whether you were registered or required to be registered for GST. | Detailed Reasoning - Course or furtherance of an enterprise: One of the requirements for a supply to be taxable under section 9-5 of the GST Act is that it must be made in the course or furtherance of an enterprise. An enterprise is defined broadly in section 9-20 of the GST Act to relevantly include an activity, or activities, done in the form of a business, in the form of an adventure or concern in the nature of trade, and on a regular or continuous basis in the form of a lease. The question is whether your activities surrounding Property B have the character of an enterprise, and if so, what that enterprise was. Our views on the meaning of 'carrying on an enterprise' are outlined in Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1). While MT 2006/1 concerns the Australian Business Number framework, its views are equally applied to GST through Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? Paragraphs 170 to 176 of MT 2006/1 explain that the phrase 'in the form of a business' widens the enquiry beyond formal businesses to the commercial character of what is done. The characterisation turns on an overall impression drawn from factors including purpose and intention, the way the activities are organised and carried out, their scale and repetition, and whether they resemble how such activities are ordinarily conducted in the same or similar trades. It is the weighing of these factors that leads to a conclusion; no single factor is determinative. Additionally, the concept of enterprise expands on 'in the form of a business' with 'in the form of an adventure or concern in the nature of trade'. Although an activity may be an isolated or one-off transaction which would not amount to a business, paragraph 234 of MT 2006/1 provides that it may yet have the characteristics of a business deal. Conversely, paragraph 244 of MT 2006/1 states that the mere fact that an asset is sold at a profit does not, of itself, give the activity a commercial character. In relation to one-off property transactions, paragraph 265 of MT 2006/1 identifies contextual factors that may indicate a business or an adventure or concern in the nature of trade. These include whether: • there is a change of purpose for which the land is held; • additional land is acquired to be added to the original parcel of land; • the parcel of land is brought into account as a business asset; • there is a coherent plan for the subdivision of the land; • there is a business organisation - for example a manager, office and letterhead; • borrowed funds financed the acquisition or subdivision; • interest on money borrowed to defray subdivisional costs was claimed as a business expense; • there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and • buildings have been erected on the land. Enterprise also encompasses leasing. Activities done on a regular or continuous basis in the form of a lease are within section 9-20 of the GST Act. Paragraphs 122 and 140 of MT 2006/1 recognise that activities associated with the commencement and termination of an enterprise are themselves part of that enterprise, so preparatory leasing steps and steps taken when exiting a leasing arrangement are included. You undertook substantial works over almost a decade, including acquiring and demolishing an existing dwelling, construction of a new townhouse, engagement of professional advisers, and an immediate sale at completion. Those features are consistent with an enterprise and can be consistent with a development activity, but are not determinative of the kind of enterprise carried out. You also undertook a leasing enterprise for Property B. Both Property A and Property B were leased from settlement while designs and approvals were pursued. Your construction funding was to be from existing capital, loan accounts, and assets held inside superannuation if necessary. Your change in intent from constructing a rental income-producing property to selling the property was driven by funding constraints when construction costs increased during the pandemic. After exhausting your own funds, a mortgage facility, and proceeds from selling an SMSF investment, you approached Bank A to finance completion of Property B on a rental basis, reasonably expecting that rental income would exceed all costs. Bank A declined and instead offered a conditional facility requiring immediate placement of the property on the market upon completion, with pricing to 'meet the market' and a stipulated timeframe. The decision to sell Property B was, therefore, not your intention for most of the construction period, nor a realisation of an alternative that was contemplated at acquisition. It was the consequence of Bank A's imposed conditions after other funding sources were exhausted, contrary to the established plan to hold Property B as a rental. The sale is properly viewed as a response to external constraints rather than a profit-making property development venture. Although there was building activity and a sale of new residential premises, the combination of a consistent leasing intention, actual leasing before demolition, the absence of prior development activity, the absence of subdivision or similar programmatic profit-maximisation steps, and the lender-imposed nature of the sale weigh against characterising the activities as a property development enterprise or an adventure or concern in the nature of trade. There was no enterprise of property development. However, there was an enterprise of leasing. Both Property A and Property B were leased following acquisition and before demolition, and the redevelopment was undertaken with the intention that Property B would be retained as a long-term rental for which you obtained real estate agent estimates of income. Activities associated with the commencement or termination of an enterprise are part of that enterprise. The sale of Property B, occurring when Bank A's conditions made the leasing plan unsustainable, is best characterised as a realisation upon termination of that enterprise, rather than as a trading transaction. | Detailed Reasoning - Registered or required to be registered for GST: A supply will only be taxable under section 9-5 of the GST Act if you were registered for GST at the time of the supply, or if you were required to be registered. You were not registered for GST. Section 23-5 of the GST Act that registration is required when an enterprise is being carried on and the GST turnover meets the registration threshold under section 188-10 of the GST Act. The threshold for GST registration is $75,000, as provided for in section 23-15 of the GST Act and section 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 . In working out GST turnover for the next twelve months under section 188-20 of the GST Act, supplies that are made as a result of ceasing to carry on an enterprise are disregarded under paragraph 188-25(b)(i) of the GST Act. Paragraph 41 of Goods and Services Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover explains that the supply must be made as a result of the cessation of the enterprise. You disposed of your enterprise-related asset and are no longer carrying on an enterprise of leasing. Accordingly, the proceeds from the sale of Property B are not included in your GST turnover. Your projected GST turnover does not meet the registration threshold because you are not making any other enterprise-related supplies. You were therefore not required to be registered for GST. | Detailed Reasoning - Conclusion: You did not make a taxable supply under section 9-5 of the GST when you sold Property B as you were not registered for GST and were not required to be registered for GST.