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Is the profit derived from the subdivision and sale of rural land assessable income in the hands of the taxpayer under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The profit derived from the subdivision and sale of rural land is not assessable income in the hands of the taxpayer under section 6-5 of the ITAA 1997.

In the 1970's the taxpayer purchased farming land. Several types of farming were attempted and found unprofitable over an extensive period. Due to the unprofitability of the farming business the taxpayer rezoned and subdivided the land.

Roads were constructed, underground power was installed and trees were planted. Little of the subdivision work was performed by the taxpayer who relied on town planners, engineers, contractors and consultants to design, plan and sell the allotments.

The taxpayer had not conducted any other activities relating to property development.

In determining whether an isolated transaction amounts to a business operation or commercial transaction, paragraph 13 of Taxation Ruling TR 92/3 outlines a number of factors which must be considered. The factors are related to the present case as follows: • the sale of the subdivided land was precipitated by the inherent unprofitability of the land • the land was originally purchased for the purpose of conducting farming • the land was used for farming activities for an extensive period prior to subdivision • little of the subdivision work was performed by the taxpayer • the taxpayer had no other business relating to property development • the taxpayer relied on town planners, engineers, contractors and consultants to design, plan and sell the allotments.

The facts in this case are materially similar to the facts in Casimaty v. FC of T (1997) 151 ALR 242, 97 ATC 5135, 37 ATR 358, where the proceeds were held to not be income according to ordinary concepts, but rather constituted the mere realisation of a capital asset, carried out in an enterprising way so as to secure the best price. Consequently, the profit derived from the subdivision and sale of the land by the taxpayer is not assessable income under section 6-5 of the ITAA 1997.