For many practitioners, the answer has long seemed straightforward: the land sale rules determine when a disposal of land is taxable. However, Inland Revenue's updated draft Interpretation Statement PUB00519 concludes that section CB 3 of the Income Tax Act can also apply to disposals of land in certain limited circumstances. The draft Statement was released for public consultation from 2 July to 13 August 2026.

This may come as a surprise to some practitioners: either with the view that section CB 3 did not apply to real property (i.e. land) or that the land taxing provisions (sections CB 6A to CB 23B) are a code which comprehensively covers when land disposals are taxed. 

A key aspect of Inland Revenue's reasoning is its analysis of the relationship between section CB 3 and sections CB 12 and CB 13. They no longer consider that sections CB 12 and CB 13 comprehensively tax all undertakings or schemes involving development or division of land. They state that “these provisions materially differ in scope and application from s CB 3, and there is nothing to suggest they were intended to replace s CB 3 for land disposals”.  

What is section CB 3 intended to tax?

Section CB 3 provides that an amount derived from an undertaking or scheme for the purpose of making a profit is income of a person. For section CB 3 to apply the profit-making purpose must be the dominate purpose for entering into the undertaking or scheme. Additional guidance on what constitutes an undertaking or scheme, including the limits recognised by the courts has been included in the Statement.

What is now section CB 3 was originally contained in section 88(1)(c)” of the Land and Income Tax Act 1954 which included three limbs, the first two of which (from 1973) concerned disposal of personal property only. Inland Revenue take the view that these first two limbs did not colour (or limit by context) the meaning or scope of what is now section CB 3. 

They state that “the plain wording of the provision, both then and now, is not limited to profits from disposal of personal property only or, for that matter, to profit-making undertakings or schemes involving disposal of property at all”. 

Inland Revenue’s view is that section CB 3 can apply to disposals of land, despite the expansion of the land sale rules in 1973. They suggest that differences in the scope of section CB 3 and sections CB 12 and CB 13 indicate that the latter sections were introduced to tax amounts from undertakings or schemes involving land that would otherwise not necessarily be caught by s CB 3.

“There is nothing to indicate ss CB 12 and CB 13 were intended to replace s CB 3 for land disposals”.

Land taxing rules not a code

Inland Revenue also consider that the land taxing provisions are not a code and that section CB 3 can apply to tax disposals of land. The main arguments advanced in support of this conclusion are broadly as follows:  

1. There is nothing in the land taxing provisions which states that they are the only provisions that can apply to land disposals. 
2. The legislative history suggests the purpose of implementing the land taxing provisions was to strengthen and supplement existing taxing provisions in the context of land disposals, rather than to narrow them by creating a separate scheme to comprehensively tax land disposals.

It is interesting to note that the taxing elements of the land taxing provisions have their own internal hierarchy, broadly applying in order of first applicable provision. Relationship priorities within the land taxing provisions are also specified where appropriate. No reference is made to section CB 3. 

What provisions have priority?

The Statement provides guidance on and examples of when section CB 3 may apply to a disposal of land and usefully sets out a hierarchy to determine whether the section or the wider land taxing provisions has priority. The following hierarchy applies:

1. Is there a land sale rule that applies to the disposal? If there is, the relevant land sale rule takes priority over section CB 3. 
2. If there is no land sale rule that applies, section CB 3 may potentially apply.
3. In most cases section CB 3 would not apply if an exclusion to a land sale rule applies. The exclusions relate to the capital use of land (for example, as a residence or business premises).
4. However, section CB 3 will apply if there is a profit-making undertaking or scheme separate from the capital use of the land.

It is important to note that an undertaking or scheme under section CB 3 is separate to and does not relate to any capital use of the land. In most cases, where an exclusion to a land taxing provision applies, section CB 3 will also not apply because the sale is simply the realisation of a capital asset. 

The boundary as to what constitutes the mere realisation of a capital asset including for best advantage versus the establishment of a separate profit-making undertaking or scheme is important. Section CB 3 only has application in respect of the latter activity.