In Tax Ruling 92/3, the ATO talks about whether a profit made from selling real estate needs to happen in the way the taxpayer originally planned for it to count as a profit-making scheme. Unfortunately, the ATO's stance is that if a taxpayer aims to make a profit through one method but ends up making it through a different method, it still counts as a profit-making scheme. This means even if someone plans to make money by selling land but ends up making money through something like the government taking the land, it's still seen as a profit-making scheme.
The ATO looks at a case called Moana Sand Pty Ltd v FCT to support this view. In that case, the taxpayer bought land with two purposes: selling the sand on it and later selling the land for development. Even though they ended up making money when the government took the land, the court said it still counted as income.
So, according to the ATO, it's really hard for taxpayers to say they've changed their mind about making money from the land and turn it into a capital asset instead. For example, if someone buys land to build houses to sell but then decides to rent them out instead, the ATO would likely say any profit from selling those houses still counts as part of a profit-making plan, not just selling a regular asset.
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