Tax Issues in relation to the subdivision of land

Tax Issues in relation to the subdivision of land

When you subdivide a block of land, the consequence is that you take your block and you convert it into one or more blocks, each of which now has its own separate title. So you're taking that one block and for instance, turning it into two subdivided blocks which now have their own independent title. No CGT event actually happens at that point. There's no disposal. The people that owned the block before the subdivision and the people that own it after the subdivision are still the same ( no change of ownership). There's been no disposal, no CGT event. So, nothing needs to be recorded for capital gains tax purposes at the point in time at which the subdivision arises.

Having said that, there is one tax consequence which will flow down the line to when the land is actually sold. And that is that the base cost of the original block of land needs to be carved up to be allocated across those new subdivided blocks. The way in which you can do that is that, essentially, it's done on a reasonable basis as the ATO puts it. It could well be that if each block is relatively similar to the others, you simply take the original cost base of the land and simply divide it equally amongst the various subdivided blocks

The deemed date of acquisition of each of those subdivided blocks is still the original date of acquisition of the original parcel of land. So, the actual subdivision itself does not make any difference to the deemed date of acquisition. And therefore it doesn't impact on things like the capital gains tax 50% discount.

A very common scenario is where you have somebody who owns the family home. They might have a large block. They want to release some equity from that block. And the way in which they do that is to split the block into one or more subdivisions. In that kind of situation, there's no main residence exemption available for the subdivided block that's been sold off. That being said, it is also possible in certain situation where the full main residence exemption will be available.

We have in house expertise in this area, please reach out to us if you require tax advice on sub-division of land and/or partitioning of land.

Disclaimer: The material and contents provided in this blog are general guide and informative in nature only. They are not intended to be seen as legal and tax advice. If expert assistance is required, you should seek your own advice for any legal, tax or investment issues raised in your affairs.