Hi Everyone My father purchased an investment property in 1972 (pre CGT). It is a corner block and in 1997 he subdivided the land. The land was never developed. If he sells both the house and land today am i right in thinking that the house will not have capital gains tax but the vacant block will? Thank you.
subdivision doesn't change the preCGT nature of the land. but CGT will apply to improvements made post 1985 potentially
Thanks Terry. So if I understand what you're saying correctly because the land was not developed potentially no CGT applies.
Pre CGT assets dont have CGT applied. However subdivison and use of the land is potentially not a CGT event and so ordinary income tax likely applies. Remember back in 1972 CGT didnt exist BUT..,. Profit making from land did. This hasnt changed. This is the taxing basis before CGT is even considered for pre-CGT assets. Vacant land can be problematic since its hard to argue it was oriinally acquired to produce income. Hopefully it was held for private purposes. Many youger practitioners may incorrectly assume CGT and never consider this stil ticking tax issue. Its one of my ccurly questions for new advisers and few of them even understand the concept as they dont learn old tax law. If both are sold as one contract then the whole of the land may fall under the adjacent rule and all be exempt as pre-CGT and also as a main residence. IMO the nature of why the land was subdivided and sold needs tax advice. It may be a mere realisation of a CGT asset or may not be. Its probably simple and if you call me on 0401304316 I would be happy to discuss
