Private ruling: CGT and sale of property
Date of advice: 24 April 2026
Published: 13 July 2026

Ruling: Q1: Will the sale of Property 1 be subject to the capital gains tax (CGT) regime in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the sale of Property 1 be eligible for the 50% CGT Discount under Subdivision 115-A of the ITAA 1997? | A2: Yes. | Q3: Will the sale of Property 2 be subject to the CGT regime in Parts 3-1 and 3-3 of the ITAA 1997? | A3: Yes. | Q4: Will the sale of Property 2 be eligible for the 50% CGT Discount under Subdivision 115-A of the ITAA 1997? | A4: Yes. Issue 2 Property Sale - residential property and GST | Q5: Will the sale of Property 1 be a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A5: No. | Q6: Will the sale of Property 2 be a taxable supply in accordance with section 9-5 of the GST Act? | A6: No.

Relevant facts and circumstances: You are a director of a small community organisation. Although registered for GST, it operates on a not-for-profit basis, makes turnover significantly below $150,000. You are also partner in a small business that is not registered for GST, with turnover less than $15,000 in the last financial year. In both cases, there are no full time or part time employees. All labour is volunteer based. You are partners in a tax law partnership. You as a partnership are not currently registered for GST. You hold 2 properties as 50/50 tenants in common. The properties were acquired in 20XX. In 20XX, you engaged with a property investment group who had a model of 'buy, build and hold' who discussed areas with long term growth potential with you. They told you about building wealth via property investment. You were told that your properties would be able to generate cash flow and pay for themselves on completion. You placed deposits on two duplex projects for Property 1 and 2 and you purchased the properties sight unseen through the property investment group. Both properties were located on unregistered and unsubdivided land at this time. You were not given an option of which blocks to choose from. You used your own money for the deposit, approximately $x each for the land and buildings. You were provided an in-house broker to help you source the finance for construction. You were advised that the land would be registered in a few months. You were advised that the land would appreciate in value as more subdivisions are undertaken in the estates. The property investment group engaged a town planner on your behalf, and then eventually passed them onto you as part of the process of managing the construction of the properties. They handled the construction of the properties for you via their building entity. Between 20XX and 20XY, there were land registration delays which prevented settlement from occurring. The delay resulted from unforeseen circumstances and adverse weather events. Due to these delays, in 20XY your building contract expired. Approximately $x of escalation costs were involuntarily absorbed by you across both developments. You also incurred some council costs towards the end of the build that weren't relayed to you at the start. You intended to retain the properties when interest rates were lower, and the rents were projected to cover the cost of the repayments. However, over time interest rates increased and you soon found that you were making a significant loss whilst holding the properties. You both discussed continuing to hold the properties as a non-viable option long term and decided to sell the properties. No other professionals were engaged except for the builders, and real estate agents for tenanting the property. Your rental property accounting and tax records are prepared by your registered tax agent. The properties are not currently listed for sale. You intend to sell the properties through a real estate agent and allow them to market the properties.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 Subdivision 115-A | Income Tax Assessment Act 1997 section 995-1 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 section 188-10 | A New Tax System (Goods and Services Tax) Act 1999 section 188-15 | A New Tax System (Goods and Services Tax) Act 1999 section 188-20 | A New Tax System (Goods and Services Tax) Regulations 1999 section 23.15.01

Reasons for decision: Detailed Reasoning - Issue 1: Property sale - capital vs revenue, isolated transaction | Summary: The disposals of Property 1 and Property 2 will be subject to the CGT regime in Parts 3-1 and 3-3 of the ITAA 1997 because you are not in the business of property development, and the disposals will be mere realisation of capital assets. The disposals will be eligible for the 50% CGT discount under Subdivision 115-A of the ITAA 1997 as they have been held for over 12 months. | Detailed Reasoning - Detailed reasoning: Income Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Section 6-10 of the ITAA 1997 provides that your assessable income also includes some amounts that are not ordinary income, which is assessable as statutory income. Broadly, there are three main ways the proceeds from a property development can be treated for taxation purposes: • as ordinary income under section 6-5 of the ITAA 1997, on revenue account as a result of carrying on a business of property development, involving the sale of land as trading stock • as ordinary income under section 6-5 of the ITAA 1997, on revenue account as a result of an isolated business transaction entered into by a non-business taxpayer, or outside the ordinary course of business of a taxpayer carrying on a business, which is the commercial exploitation of an asset acquired for a profit making purpose • as statutory income under the CGT legislation, from a mere realisation of a capital asset, assessable under Parts 3-1 and 3-3 of the ITAA 1997 in accordance with section 6-10 of the ITAA 1997. Whether the proceeds are treated as income or capital depends on the situation and circumstances of each particular case. Carrying on a business Section 995-1 of the ITAA 1997 states the term 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. For a one-off land subdivision to be considered to be of a business or commercial nature, it is usually necessary that a taxpayer has the purpose of profit-making at the time of acquiring the property. The Commissioner's view on whether a taxpayer is carrying on a business is found in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) which uses the following indicators to determine whether a taxpayer is carrying on a business: • whether the activity has a significant commercial purpose or character; • whether there is repetition and regularity of the activity; • whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; • whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit; • the size, scale and permanency of the activity; and • whether the activity is better described as a hobby, a form of recreation or a sporting activity. In determining whether a taxpayer is carrying on a business, no one indicator will be decisive. The indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the large or general impressions gained from looking at all the indicators and whether these indicators provide the operations with a commercial flavour. Profits from isolated transaction Profits arising from an isolated commercial transaction will be ordinary income if the purpose or intention in entering into the transaction is to make a profit, even though the transaction may not be part of the ordinary activities of a taxpayer's business ( Federal Commissioner of Taxation v Myer Emporium Ltd 1987 163 CLR 199; 87 ATC 4363; 18 ATR 693) ( Myer ). Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) provides guidance in determining whether profits from isolated transactions are ordinary income and assessable under section 6-5 of the ITAA 1997. The term isolated transaction refers to: • those transactions outside the ordinary course of business of a taxpayer carrying on a business; and • those transactions entered into by non-business taxpayers. Profit-making does not need to be the sole or dominant purpose for entering into the transaction. A profit-making purpose must exist at the time the transaction or operation was entered into. Whether an isolated transaction is business or commercial in character will depend on the circumstances of each case. Paragraph 35 of TR 92/3 provides that a profit from an isolated transaction will be ordinary income where: • the intention or purpose of a taxpayer in entering into the transaction was to make a profit or gain, and • the transaction was entered into and the profit was made in the course of carrying on a business operation or commercial transaction. Profits on the sale of subdivided land can therefore be income according to ordinary concepts within section 6-5 of the ITAA 1997 if the subdivision activities have become a separate business operation or commercial transaction, or an isolated profit-making venture. The courts have stated 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. The expression 'mere realisation' is used to contradistinguish a business operation or a commercial transaction carrying out a profit-making scheme ( Myer at 163 CLR 213; 87 ATC 4368-4369; 18 ATR 699-700). If a transaction satisfies the elements set out in paragraph 35 of TR 92/3 it is generally not a mere realisation of an investment. Whether an isolated transaction is business or commercial in character will depend on the circumstances of each case. Paragraph 13 of TR 92/3 lists the following factors: • the nature of the entity undertaking the operation or transaction • the nature and scale of other activities undertaken by the taxpayer • the amount of money involved in the operation or transaction and the magnitude of the profit sought or obtained • the nature, scale and complexity of the operation or transaction • the manner in which the operation or transaction was entered into or carried out • the nature of any connection between the relevant taxpayer and any other party to the operation or transaction • if the transaction involves the acquisition and disposal of property, the nature of that property • the timing of the transaction or the various steps in the transaction. No single factor is determinative; rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. Paragraphs 56 and 57 of TR 92/3 explains that a profit is income where it is made in any of the following situations: • a taxpayer acquires property with a purpose of making a profit by whichever means prove most suitable and a profit is later obtained by any means which implements the initial profit-making purpose, or • a taxpayer acquires property contemplating a number of different methods of making a profit and uses one of those methods in making a profit, or • a taxpayer enters into a transaction or operation with a purpose of making a profit by one particular means but actually obtains the profit by a different means. In very general terms a transaction or operation has the character of a business operation or commercial transaction if the transaction or operation would constitute the carrying on of a business except that it does not occur as part of repetitious or recurring transactions or operations. Paragraph 44 of TR 92/3 explains when a taxpayer derives a profit from a transaction outside the ordinary course of carrying on its business and the taxpayer did not enter that transaction with the purpose of making a profit, the profit is not assessable income. 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) aligns with TR 92/3 and provides a list of factors which, if present may be an indication that a business or profit-making undertaking or scheme is being carried on. Relevant factors include: • 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; • borrowed funds financed the acquisition or subdivision; • there is a level of development of the land beyond that necessary to secure council approval for the subdivision. It is emphasised at paragraph 266 of MT 2006/1 that no single factor is determinative, rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. The intention and purpose need to be carefully considered in each case. In Westfield v Commissioner of Taxation [1991] FCA 86 ( Westfield ), Hill J said: What was said in Myer has been applied in a number of cases in this court since. Among them are Moana Sand Pty Limited v Federal Commissioner of Taxation (1988) 88 ATC 4897, and Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42. It does not, however, follow from the judgment in Myer, or for that matter, from the judgments in any later cases, that every profit made by a Taxpayer in the course of his business activity will be of an income nature. To so express the proposition is to express it too widely, and to eliminate the distinction between an income and a capital profit. Capital gain from mere realisation Division 104 of the ITAA 1997 sets out the CGT events that can happen to a CGT asset and section 104-10 provides that CGT event A1 occurs on the disposal of an asset. As a consequence of CGT event A1, subsection 104-10(4) provides that you make a capital gain if the capital proceeds from the disposal are more than the assets cost base or conversely you make a capital loss if the capital proceeds are less than the assets reduced cost base. The mere realisation of a capital asset will be subject to the CGT provisions. Where the sale is a 'mere realisation' the sale is on capital account to which the CGT rules will generally apply. These proceeds are not ordinary income. The expression 'mere realisation' is used to distinguish a mere realisation from a business operation or a commercial transaction carrying out a profit-making scheme. In Westfield , the company was in the business of designing, constructing, letting and managing shopping centres. The company acquired land in the early 1970s and further land via an option which it subsequently sold and realised at a substantial gain. The Full Federal Court held that the disposal of land was on capital account as the necessary intention or purpose of making a profit on the sale of the land was absent. This was because the main aim of the company was to secure contracts to design, develop and operate/manage a shopping centre on the land. The disposal of the land was incidental to these purposes. The fact that the transaction was commercial or a business transaction was, of itself, insufficient. The Full Federal Court, in reaching its decision in Westfield , considered the judgement in Myer and stated at 4241 that Myer 'emphasises that where a transaction occurs outside the scope of ordinary business activities, it will be necessary to find, not merely that the transaction is "commercial" but also that there was, at the time it was entered into, the intention or purposes of making a relevant profit'. Application to your circumstances You acquired the properties sight unseen in 20XX, and they settled in 20XY. You originally intended to hold the property as a long-term investment. You used your own money for the deposit and sourced finance for the construction of the dwellings. You did not personally carry out the subdivision or development activity on the properties. You engaged real estate agents for tenanting the properties, and you intend to sell the properties through a real estate agent. You have no organised or formal systems, plans or staff in relation to this activity. Your registered tax agent undertakes your accounting and tax reporting. You are not registered for GST. You acquired the properties with the intention to hold them for rental income, when interest rates, materials costs and inflation were lower. You experienced significant delays in land registration which you did not anticipate. You incurred extra materials costs due to other unforeseen circumstances. You incurred an extra $x costs over both properties. Since then, interest rates and inflation have risen which has impacted your projected rental yields and increased your financial exposure. Your change of intention to sell the properties rather than hold them was driven by unexpected delays and capital and interest rate exposure. You had not considered selling the properties prior to completion of construction and generation of rental income. There was no off-the-plan marketing, no construction-phase selling, and no repetition of similarly organised projects. The size and scale of this activity is not significant. The development was not complex, and you did not set up a separate entity to undertake the development. Depreciation schedules are consistent with rental intent. The nature of the activity, together with the other indicators of business set out in TR 97/11 support the conclusion that you are not in the business of property development. The sale of the properties are not sales made in the ordinary course of your business. The decision to sell the properties does not make the proceeds from the sales either income from business activity or profits from an undertaking or scheme. The sale of the properties is considered a mere realisationof capital assets and is subject to CGT. Both properties were acquired in the 20XY income year and have been held for over 12 months. Accordingly, any capital gain arising from CGT event A1 is a discount capital gain and eligible for the 50% discount. | Detailed Reasoning - Issue 2: Property Sale - residential property and GST | Summary: The sale of Property 1 and Property 2 are not taxable supplies as you are neither registered nor required to be registered for GST. | Detailed Reasoning - Detailed reasoning: GST is payable on any taxable supply you make. Under section 9-5 of theGST Act, you make a taxable supply 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 Australia; 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. For the sale of Property 1 and Property 2 to be taxable supplies, all the requirements in section 9-5 of the GST Act must be satisfied. You satisfy the requirements under paragraphs 9-5(a) to 9-5(c) of the GST Act as you made the supply of the properties for consideration, the supply is made in the course of an enterprise of leasing the properties and the supply is connected with Australia as the properties are located in Australia. What remains to be determined is whether you were registered or required to be registered for GST at the time of the supply of the properties. | Detailed Reasoning - GST registration: Section 23-5 of the GST Act provides that an entity is required to be registered for GST if: (a) it is carrying on an enterprise and (b) its GST turnover meets the registration turnover threshold. The A New Tax System (Goods and Services Tax) Regulations 1999 at section 23.15.01 sets the registration turnover threshold for entities, other than non-profit bodies, at $75,000 a year. As concluded earlier, your activities of purchasing Property 1 and Property 2, building residential dwellings, renting the properties and sale of properties fall within the scope of 'carrying on an enterprise' thus satisfying paragraph 23-5(a) of the GST Act. GST turnover Subsection 188-10(1) of the GST Act provides that your GST turnover meets the registration turnover threshold if: a) your current GST turnover is at or above the turnover threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or b) your projected GST turnover is at or above $75,000. Your current GST turnover is defined in section 188-15 of the GST Act as the sum of the values of all your supplies made in a particular month and the preceding 11 months. Your projected GST turnover is defined in section 188-20 of the GST Act as the sum of the values of all your supplies made in a particular month and the following 11 months. The calculation of both your current GST turnover and your projected GST turnover will include the value of all supplies you make in relation to your small business and community sporting organisation. Paragraphs 188-15(1)(a) and 188-20(1)(b) of the GST Act provide that input taxed supplies are to be disregarded when calculating your current and projected turnovers respectively. Your rental income from Property 1 and Property 2 in this case is an input taxed supply under section 40-35 of the GST Act (i.e. being a supply of residential premises that are neither commercial residential premises (hotel, motel etc.) nor accommodation in commercial residential premises). As such, rental proceeds in relation to the rental of the properties are not included in the calculation of your 'current GST turnover' or your 'projected GST turnover.' Further, rental income derived by XX in relation to other properties they own is also an input taxed supply under section 40-35 of the GST Act. As such, rental proceeds in relation to the rental of these properties are also not included in the calculation of your 'current GST turnover' or your 'projected GST turnover.' Section 188-25 of the GST Act provides that in calculating your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset. Section 188-25 of the GST Act is extracted below: In working out your projected GST turnover, disregard: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and (b) any supply made, or likely to be made, by you solely as a consequence of: (i) ceasing to carry on an enterprise; or (ii) substantially and permanently reducing the size or scale of an enterprise. Goods and Services Tax Ruling GSTR 2001/7 Goods and Services Tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) discusses this issue. The meaning of 'capital assets' is discussed at paragraphs 31 to 36 of GSTR 2001/7: Meaning of 'capital assets' 31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'. 32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill. 33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a). 34. 'Capital assets' are to be distinguished from 'revenue assets'. A 'revenue asset' is 'an asset whose realisation is inherent in, or incidental to, the carrying on of a business'. 35. If the means by which you derive income is through the disposal of an asset, the asset will be of a revenue nature rather than a capital asset even if such a disposal is an occasional or one-off transaction. Isolated transactions are discussed further at paragraphs 46 and 47 of this Ruling. 36. Over the period that an asset is held by an entity, its character may change from capital to revenue or from revenue to capital. For the purposes of section 188-25 the character of an asset must be determined at the time of expected supply. We consider the sale of Property 1 and Property 2 would constitute the transfer of a capital asset for the purposes of section 188-25 and would therefore be disregarded when calculating your projected GST turnover. The properties were not intended to be acquired for the primary purpose of resale. The primary reason you decided to sell both properties was due to rise in interest rates and material costs for construction. You experienced significant delays in land registration which you did not anticipate. You incurred extra materials costs due to other unforeseen circumstances. You incurred an extra $x costs over both properties. Since then, interest rates and inflation have risen which has impacted your projected rental yields and increased your financial exposure. Your change of intention to sell the properties rather than hold them was driven by unexpected delays and capital and interest rate exposure. You had not considered selling the properties prior to completion of construction and generation of rental income. There was no off-the-plan marketing, no construction-phase selling, and no repetition of similarly organised projects. The size and scale of this activity is not significant. The development was not complex, and you did not set up a separate entity to undertake the development. The sale of Property 1 and Property 2 are not sales made in the ordinary course of your business. As amounts of input taxed residential rent and supplies by transfer of capital assets are disregarded, your GST turnover does not meet the registration turnover threshold as the income you derive from your small business and community sporting organisation is under the registration turnover threshold. Thus, you are not required to be registered for GST, and the sale of Property 1 and Property 2 will not be taxable supplies as paragraph 9-5(d) of the GST Act has not been met.