When a big subdivision can still be the realisation of a capital asset
Turning an old paddock into dozens of residential lots certainly looks like property development. From a tax perspective, though, appearances don’t tell the whole story.
That is one of the key lessons from Commissioner of Taxation v Morton [2026] FCAFC 31. On 27 March 2026, the Full Court of the Federal Court unanimously dismissed the Commissioner’s appeal, leaving in place the finding that proceeds from the subdivision and sale of David Morton’s long-held farmland were capital receipts rather than ordinary income.
The history of the property was central to the case. Morton acquired a 10-acre block in Tarneit, Victoria, from his father in 1980 for $13,500 and farmed it for decades. The surrounding area changed dramatically over time. After the land was rezoned from rural to residential in 2010, increasing rates and land tax helped make farming less practical.
Morton eventually entered into an arrangement with a professional developer to subdivide and sell the property. His original block ultimately became 48 residential lots and two commercial lots.
The ATO argued that the scale and sophistication of the development meant the proceeds should be treated as income. The Court took a different view. Morton had found an enterprising and profitable way to realise his land, but that did not necessarily mean he had turned himself into a property developer carrying on a profit-making business.
| Factor | What happened in Morton | Why it mattered |
| History of the land | Acquired in 1980 and farmed for decades | Supported its longstanding character as a capital asset |
| Why development occurred | Rezoning and changing economics made farming less viable | Subdivision formed part of eventually realising the land |
| Developer’s role | Professional developer undertook substantial development work | Morton was not personally running the operation |
| Commercial risk | Developer assumed significant development responsibilities and risk | Helped distinguish Morton from an active developer |
| Scale | Morton’s land produced 50 lots | Scale alone was not decisive |
| Outcome | Commissioner’s appeal was dismissed | Proceeds retained their capital character |
“Mere realisation” doesn’t mean sitting on your hands
This is where Morton becomes particularly interesting for landowners. Realising a capital asset does not necessarily require selling it exactly as it stands. An owner may take substantial steps to obtain a better return without automatically crossing the line into carrying on a property-development business.
Morton’s arrangement was certainly sophisticated. What mattered was the commercial reality behind it. The professional developer assumed extensive responsibility for financing, subdivision works, earthworks, marketing and sales, while Morton remained comparatively removed from the day-to-day development operation.
The Commissioner argued that the developer’s activities should effectively be attributed to Morton because they were undertaken “by or on behalf of” him. The Full Court rejected that characterisation after examining the development agreement and the relationship the parties had actually created.
It is also worth correcting a tempting oversimplification: the owner’s intention when purchasing the land is important, but it is not the only thing that matters. Tax characterisation depends on the wider factual picture — purpose, conduct, contractual arrangements, degree of involvement, risk and the commercial circumstances surrounding the realisation. The ATO has itself described Morton as an application of existing principles rather than a new tax rule for subdivisions.
There was another unusual feature. Morton acquired the property before CGT commenced on 20 September 1985. Once the proceeds were characterised as capital, this meant the result was not simply access to the usual CGT discount. Owners subdividing post-CGT property should not assume they will receive the same tax outcome.
For anyone considering a subdivision, some questions are worth answering early: • When and why was the land acquired? • How has it historically been used? • Who will finance and carry out the development? • Who bears the commercial risk? • How involved will the owner be? • What does the development agreement actually provide? • Have income tax, CGT, GST and relevant state duty consequences been separately considered?
A subdivision can be large, sophisticated and profitable without automatically becoming a property-development business. Morton shows why the facts behind the project matter more than the label attached to it.
Flash Conveyancing Advice
If subdivision potential is part of the reason you’re buying a property, investigate it before exchange. A section 10.7 planning certificate can reveal important planning controls and restrictions, but it is not a promise that council will approve your subdivision. Check zoning, easements, covenants, access and other title or planning constraints, and involve planning, surveying and tax professionals where the project requires them.
Flash Conveyancing, led by Julian & Renee, specialises in property transactions throughout NSW. For someone looking at land with development or subdivision potential, the right time to start examining the paperwork is before new boundary lines appear on a surveyor’s plan.
A section 10.7 certificate can reveal planning instruments and restrictions affecting the property. The title may tell another part of the story, including registered easements, covenants and other interests capable of affecting what can be done with the land. Neither document, by itself, guarantees that a proposed subdivision will be approved.
The NSW subdivision process can involve development consent, subdivision works certification and ultimately a subdivision certificate that allows the subdivision plan to proceed towards registration. That is why conveyancing, planning and surveying often need to work together rather than being treated as separate problems.
Flash Conveyancing can assist with the conveyancing aspects of an acquisition and the relevant title documentation. Where the project raises questions about whether future sales will be ordinary income or capital receipts, or about CGT, GST or more complex development structures, those questions should also be taken to an appropriately qualified tax adviser or specialist lawyer.
Julian and Renee personally oversee files as part of Flash Conveyancing’s boutique, human-led service. According to the practice’s own procedures, sensitive settlement instructions are directly voice-verified, while confidential information is supported by offline local-storage measures. Flash Conveyancing assists clients across Sydney, Newcastle and Wollongong, as well as Blacktown, Hawkesbury, the Blue Mountains, The Hills, Hornsby and Parramatta. Its service area includes Acacia Gardens, Angus, Arndell Park, Blacktown, Colebee, Glendenning, Glenwood, Grantham Farm, Kellyville Ridge, Kings Langley, Marsden Park, Melonba, Oakhurst, Parklea, Quakers Hill, Riverstone, Schofields, Seven Hills, Stanhope Gardens, Tallawong, The Ponds, Baulkham Hills, Beaumont Hills, Bella Vista, Castle Hill, Kellyville, Kenthurst, North Rocks, Northmead, Rouse Hill, Vineyard, Windsor, Annangrove, Box Hill, Cattai, Dural, Gables, Galston, Glenhaven, Glenorie, Maraylya, Middle Dural, Nelson, North Kellyville, Norwest and Winston Hills.
