Private ruling: Property - subdivision
Date of advice: 6 November 2025
Published: 22 December 2025
Ruling period: year ending 30 June 20XX | year ending 30 June 20XX | year ending 30 June 20XX | year ending 30 June 20XX | year ending 30 June 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Will any of the proceeds from the sale of the subdivided lots of land be treated as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. Based on the information provided, the proceeds from the sale of the subdivided lots will not be ordinary income and not assessable under section 6-5 of the ITAA 1997 as either: • the carrying on of a business in accordance with the factors listed in Taxation Ruling 97/11; or • a profit-making or commercial transaction in accordance with Taxation Ruling TR 92/3. Therefore, any proceeds received on the disposal of the subdivided lots of land will represent a mere realisation of capital assets which will be assessed under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997. | Q2: Are you carrying on an enterprise in relation to the sale of subdivided lots of land, pursuant to section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and as a result, be required to be registered for GST pursuant to section 23-5 of the GST Act? | A2: You are carrying on an enterprise of leasing residential premises pursuant to section 9-20 of the GST Act. However, you will not be required to register for GST pursuant to section 23-5 of the GST Act as your GST turnover does not meet the registration turnover threshold. The sale of the subdivided lots are disregarded in calculating your projected GST turnover for the purposes of determining whether you are required to register for GST.

Relevant facts and circumstances: In 20XX you and your spouse approached a mortgage broker to determine your borrowing capacity and engaged a buyer's agent to assist you in finding an investment property. The buyer's agent's role was limited to identifying and recommending potential properties. The buyer's agent identified a land-to-build arrangement in City A which allowed two dwellings to be constructed on a single parcel of land. You and your spouse managed all subsequent steps including financing, builder selection, and rental arrangements, with the sole intention of holding both dwellings as long-term rental properties. You identified that your plan to build two dwellings on the land would: • Provide increased rental income potential compared to a single dwelling • Be manageable under your cash flow by staging construction payments over time • Avoid the need to fund the entire purchase upfront. In 20XX, you purchased a single parcel of vacant land in a newly released estate in City A. A number of factors influenced your purchase including: • Lot size and zoning permitted dual occupancy construction • Strong rental prospects supported by community feedback on a shortage of rental housing in the area • Familiarity with the region, as you grew up nearby and had family ties to Port Macquarie • The purchase price aligned with budget constraints at the time. At the time of purchase you and your spouse were not yet married and the land was purchased in your sole name. Your spouse already owned their own home in City B, where you both lived (City B Property). They were included as a co-borrower on the loan application to satisfy loan serviceability requirements. They did not hold any ownership over the land. The purchase of the vacant land was financed with a Tailored Home Loan. It had a facility limit of $X and a term of 30 years. The first 12 months were an interest only period, after which time you were to make 348 monthly principal and interest repayments. On XX April 20XX you signed a building contract with a construction company. The contract price was $X. The Loan documentation was prepared recording the property as an investment duplex construction with proposed rental income of $X per week and confirmation that the property would be retained to retirement with no exit strategy. The loan amount was $X, over a 30 year term, with interest only repayments for the first two years. Council approval was obtained by the builder for the construction of the two detached dwellings under a dual occupancy arrangement. The approved plans also included the option for a future Torrens Titles subdivision, incorporated at the recommendation of the surveyor as a common practice to preserve flexibility and avoid the need for a new development application in the future. In March 20XX construction commenced. It was completed in early 20XX. In February 20XX the occupancy certificates were issued for both dwellings (the City A Properties), the addresses being: • Property A, and • Property B. You have not registered for GST or claimed GST credits in relation to the construction. You did not apply for an ABN in connection with the construction or leasing of the dwellings. You sought tax advice about the application of the legislation to holding vacant land and will prepare your income tax returns accordingly. At the time of completion, the City A Properties remained on a single title. No subdivision was lodged. The surveyor prepared the line plan but held it on file, advising you that it would expire if not lodged within a set timeframe. The City A Properties were immediately advertised for lease through a local real estate agent. Based on the Property manager's advice, initial six-month tenancy agreements were signed. It was considered that the tenants would most likely become quality long-term tenants. In April 20XX the leases commenced. The City A Properties have been continuously rented out since then. In June 20XX, you commissioned a Quantity Surveyor to complete tax depreciation schedules for each dwelling, which cost $X. Shortly after the tenants of Property A moved in, they reported being unable to obtain an NBN connection. Both you and the tenants made repeated and sustained contact with multiple internet service providers and NBN Co to resolve the issue. You were advised that the dual occupancy configuration, when held on a single title, created technical limitations for service provisions. You explored alternate solutions such as running private cables between the dwellings but they were assessed as either unreliable or likely to cause ongoing service interruptions. The lack of connection affected the tenant's ability to work from home, and the problem was still unresolved by June 20XX. You decided that based on advice received, the only permanent and compliant option was to place each dwelling on its own title. The previously prepared line plan was now lodged by the builder so each City A Property could be on its own title (The Subdivided Lots). This facilitated an NBN connection for the affected property and avoided further disruption for the tenant. In December 20XX you had your first child and you and your now spouse periodically reviewed your long-term living arrangements. In April 20XX, you and your spouse made some initial enquiries with your broker about your borrowing capacity for a potential move. You are outgrowing the City B Property, and you are seeking to purchase a home in an area where you can feel safe. You decided that remaining in Suburb X was the most practical choice. This decision reflected: • Employment considerations and the need to remain close to your spouse's elderly parent who lives in a nearby retirement village and is experiencing ongoing health decline • The higher quality of local schooling and daycare options in the Suburb X area, which will support the child's education and development • A safer environment, which has become a priority for you following some recent serious incidents in the current neighbourhood. Relocating outside the Suburb X area would significantly limit your work opportunities in your specialised field and require long commutes for both you and your spouse. You made it clear that your preference was to retain all three properties, however your broker advised that this would not be possible within standard lending parameters. Purchasing in Suburb X at the desired price point would require selling both Subdivided Lots. You considered keeping one but this would not sufficiently service the loan requirements. Your broker provided you with a couple of different scenarios. Scenario 1: • Sell both Subdivided Lots • Convert your City B Property to an investment property, and • Extend the City B Property loan term to 30 years with 5 years interest only repayments. Based on this scenario, your borrowing capacity would be around $X and your maximum purchase price would be $X. Scenario 2: • Sell all three existing properties. Based on this scenario, your borrowing capacity would be around $X and your maximum purchase price will be $X. You have made the decision to sell the Subdivided Lots and to remain living in the City B Property while you look for a new home to purchase. This is a much more convenient option for your family and you are hoping you will be able to find something in the location you want to purchase that's within your affordability. You will then sell the City B Property. You are worried that delaying the sales and purchase would risk you not being able to secure a suitable property in the preferred area, where limited stock and strong competition makes it difficult for buyers to purchase in the desired location. You do not want to enter the rental market and be subject to instability, disruption to work duties and under pressure to purchase a property that does not meet your long-term needs. An incident with one of the Subdivided Lots compounded your decision to sell. A tenant broke the lease leaving a single occupant in place. You also advised that the relevant State's tenancy reforms have significantly reduced a landlord's ability to address problematic tenants or secure vacant possession and together with the sudden vacancy, increased the risk of holding the Subdivided Lots long term. Your decision to sell now has been driven by: • Rising interest rates, which have more than doubled since the loan commencement, reducing the ability to retain loan facilities for the Subdivided Lots while also acquiring your new home, • The need to free up borrowing capacity for the purchase your new home to support work, safety, family needs and your child's education, and • Legislative changes and tenancy events that have increased the risk profile of the holding the Subdivided Lots. In October 20XX the Subdivided Lots were listed for sale. You estimate that you will receive somewhere between $X to $X for each of the Subdivided Lots. You have not engaged in property development activities previously nor in any business or enterprise involving the sale of real property.

Relevant legislative provisions: Income Tax Assessment Act 1997 part 3-1 | Income Tax Assessment Act 1997 part 3-3 | Income Tax Assessment Act 1997 section 6-5 | 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 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 40-65 | A New Tax System (Goods and Services Tax) Act 1999 division 129 | A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1) | A New Tax System (Goods and Services Tax) Act 1999 section 188-15 | A New Tax System (Goods and Services Tax) Act 1999 section 188-20 | A New Tax System (Goods and Services Tax) Act 1999 section 188-25 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1