Amanda operates her own banana plantation in Mareeba, Queensland. The plantation was gifted to her by her father in 1986 (the market value of the land at the time was $500,000). Amanda's business generally peaks in profitability during the summer season. However, during the summer of January 2023, a natural flood disaster destroyed the land, significantly reducing the supply of her banana crops.

 

To recuperate the losses from the flood damage and increase her income, Amanda decides to sell the land. She applies for development consent and seeks council approval to subdivide the land into twenty (20) lots and build external fencing to maximize its value. Prior to the sale however, her nearby neighbor, a property developer, advised her to arrange for electricity, gas, and sewerage systems to be supplied to each subdivided lot so that a house could be built on it.

 

The cost incurred to develop each subdivided lot is $50,000.  The market value of the land at this time was $900,000.  The development of each subdivided lot is completed by April 2023 and by 30 June 2023, Amanda will sell each subdivided lot for $150,000.

 

 

1a)

Advise Amanda whether the sale of each subdivided lot can be characterized as ordinary income (including consideration of the extended concept) or whether would it be characterized as capital?

Please support your answer with relevant case law and legislation, and show all relevant calculations.

 
1b) A few months later after lodging her tax return, Amanda receives a notice of amended assessment from the Australian Taxation Office increasing her income tax payable. The Commissioner has stated that she has "incorrectly" characterized her gain.

Assuming Amanda has incorrectly characterized her gain, please advise her on what action she may take in respect of the amended assessment. Please support your answer with relevant case law and legislation.