Private ruling: Capital gains tax
Date of advice: 18 October 2018
Published: December 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the proceeds from the sale of a newly constructed property of the owner’s land as comprised in the Land assessable under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes Under Part 3, Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a Capital Gains Tax (CGT) event occurs when you dispose of a CGT asset and where the capital proceeds from the disposal are more than the assets cost base then you have made a capital gain. A net capital gain is included in your assessable income for the income year as calculated according to Section 102-5 of the ITAA 1997. In your case, you disposed of a CGT asset, being the rental property, and made a gain which is assessable in the relevant income year under Part 3 of the ITAA 1997.

Relevant facts and circumstances: You are an individual and are not registered for GST. You purchased a property as a rental property. As it was becoming difficult to rent older houses, you decided to rebuild the property into 3 units with multiple bedrooms and bathrooms to cater to university students. You engaged a builder to build 2 single story units and a 1 double story unit on the land. The building was completed in 20XX. Before engaging the builder, the property was rented as long as possible until demolition works started. You made the decision to sell one of the units based on the following factors: ● Local economic downturn causing rent decreases and increasing vacancies ● Glut of properties being built in the same area causing downward rental pressure ● Change in immigration laws affecting rental demand ● APRA regulation causing interest rate increases for property investors The settlement for the sale was in 20XX. You provided evidentiary material in the form of emails, cash flow calculations and media articles to support your contention that your intention was always to derive rental income from the properties and that your financial circumstances and the broader economic conditions were the reason for the decision to sell Unit 3. None of the other units have been sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3 | Income Tax Assessment Act 1997 Section 102-5 | Income Tax Assessment Act 1997 Section 104-10