Private ruling: Capital gains tax
Date of advice: 13 April 2021
Published: June 2021
Ruling period: Year ending 30 June 2022 | Year ending 30 June 2023
Date scheme commenced: 1 July 2021

Ruling: Q1: Will the proceeds received from the sale of the property be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. The proceeds from the sale of the property are not considered to be from the carrying on of a business or from an isolated commercial transaction. Therefore the proceeds are not assessable as ordinary income under section 6-5 of the ITAA 1997. | Q2: Will the gain expected to be made on the sale of the property be assessable under the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997? | A2: Yes. The gain made on the sale of the property is regarded as a mere realisation of a capital asset. Capital gains tax event A1 will happen when you dispose of the property (subsection 104-10(1) of the ITAA 1997).


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 104-10


Relevant facts: Entity A passed away in xxxx. | At the time of death entity A owned property (the property). | Entity A originally acquired the property before 19XX jointly with her late spouse (entity B). This property was also the site of their main residence. | Entity B passed away in xxxx and entity A inherited the other half interest in the property at that time. The market value of the property at that time was estimated to be approximately $xxxx. | Entity A and entity B farmed the property in partnership until xxxx. Entity A continued farming alone until around xxxx. | From around xxxx to xxxx the property was leased. | Entity A continued residing on the property for approximately another xx years before moving in xxxx. | Throughout the period of time the property was owned by entity A and entity B, the property was zoned rural. | The property was earmarked by the local council for some time for future rezoning to residential use and entity A was invited to a meeting in xxxx organised by the Council to discuss planning to transition the property to residential zoning. | Entity A authorised her relation, (entity C), at the time to act as delegate at the meeting and to deal with all related matters. | The engineering /surveying company (entity D) first approached entity A and a number of other adjoining land holders in around xxxx with the idea that they would collectively apply for rezoning as earmarked by the council. The land-owners collectively applying for rezoning would be the most efficient way of achieving the rezoning of the land in terms of sharing costs and avoiding duplication of effort. | Entity C signed the acceptance for entity D to proceed with the rezoning application before entity A's passing under a power of attorney granted by entity A. | Entity C and the other legal personal representatives (LPRs) of entity A's estate (the Estate) are now continuing the process of rezoning the property and intend to then sell the property in its entirety once rezoning is achieved. They do not plan to subdivide the property or do any works to the property. | The rezoning application was lodged with the relevant council on xxxx. | The costs to complete the rezoning of the property are estimated to be approximately $xxxx, of which half has been incurred so far. There are sufficient funds in the Estate to fund these costs and no borrowings are required. | A successful rezoning of the property (in conjunction with adjoining land) to residential usage will significantly increase the property's sale value. The property has been valued at $xxxx based on the current rural zoning. Following rezoning to residential usage, the market value is estimated to increase to approximately $xxxx. | The rezoning of the property is expected to be completed by xxxx, at which time the LPRs intend to offer the land for sale. | The LPRs are not actively involved in the rezoning process taking place. They are reliant on entity D to manage the process on their behalf. They receive updates and pay invoices for services provided by entity D. They are not required to make any particular decisions regarding the rezoning process. | Neither entity A nor the LPRs have previously been involved in any land rezoning activity or land development projects.