Question

In 1983 Bruce purchases 10 hectares of land for $1 million in an area that was ripe for subdivision. At the time of purchase he intended to get planning permission from the local council to develop the land by subdivision and then resell it at a profit, but instead he leased it for grazing horses. Three years ago Bruce attempted to get planning permission to subdivide his 10 hectares, but it proved very difficult, and finally in March of the current tax year the local council refused permission to subdivide. Bruce reluctantly sold the land in May for $3million.

according to this question is the company as a resident for australia ?

this question is about taxation law for australia

Answer 1

As Bruce has not undertaken a business of development due to refusal by local council to subdivide, the principle from FCT v Whitfords Beach Pty Ltd (1982)12 ATR 692 cannot apply .

Therefore, the issue that must be considered is whether the first strand of Myer would make this sale ordinary income and assessable under section 6-5 or whether it is a mere realisation and therefore capital in nature. The first strand of Myer will apply if following three conditions are met-

(1)There is a commercial or business transaction and,

(2) There was a profit-making intention and,

(3) the profit ultimately realised as per original intention.

The facts clearly indicate that Bruce purchased this land with the intention of subdividing it and selling it at a profit after development. However, the initial plan never came to fruition and the property had to be sold because it could not be subdivided. Nevertheless, there is still the possibility of the application of the first strand of Myeron the basis that the property was purchased with an intention to develop it and sell it at a profit.If the sale is not ordinary income, it may be subject to CGT.