Property Development Businesses (3) - A mere realisation of a capital asset



What is a ‘mere realisation of a capital asset’?

It is a well-established principle of common law that a profit arising from the ‘mere realisation of an asset’ does not generate income on revenue account, even if the taxpayer goes about the realisation in an enterprising way. Rather, the profit is taxed solely on capital account under the CGT regime. Being taxed under this regime is often desirable as any capital gain can be reduced under the 50% CGT general discount and/or the CGT small business concessions (‘CGT SBCs’), where applicable.      

Broadly speaking, the sale of a property is generally said to be a ‘mere realisation of an asset’ if the property was not trading stock at the time of sale and it was not sold as part of a profit-making scheme. By way of example, in the absence of any complicating factors (such as evidence of an intention to profit at the time of acquisition of the relevant property), the following transactions are typically considered a ‘mere realisation of an asset’:

  • The disposal of a main residence or long-term rental property.
  • The disposal of an office building or factory used in the business of a taxpayer.  
  • In most cases, a farmer who subdivides and sells off farming land will merely be realising a capital asset, provided the taxpayer does just enough to prepare the property for sale in order to realise the best price possible (and no more). Taking the following Statham’s case as an example.


Statham & Anor v FCT [1988] FCA 463 (Statham’s case)

Description of activity: subdivision of farmland by executor

Outcome: Mere realisation of capital asset (capital account)

Summary of facts:

  • Taxpayer acquired 270 hectares of farmland. Due to ill health and a depressed market, the taxpayer decided to subdivide and sell part of the land. The taxpayer died before the subdivision took place.
  • Executor continued with subdivision and selling of 105 lots in four stages of subdivision (after being unable to sell as broadacres).
  • Executor’s involvement in the subdivision was limited. Of note:
  • Only limited clearing involved and no construction on the land.
  • Roads, electricity and sewerage works all done by contractors engaged and managed by Council.
  • No borrowings (although bank guarantee was given to Council).
  • Executor maintained his ‘day job’ (as a doctor)
  • Land was sold by listing with a real estate agent.
  • Professional advice sought but bookkeeping done by family.


  • Should you have any queries, please contact Tax Ideas Accountants & Advisers on +61 2 83181545
  • Alternatively, you can book an appointment in our live calendar.

Written by Panbo Ye

I help people discover POWERFUL unknowns in Tax Ideas | Wealth Strategies | Retirement Planning | Finance Solutions!

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