Pre CGT tax on subdivision?

Hi guys,

Tricky question as I’ve been told different stories by several different accountants.

Property is main residence and bought pre cgt. Looking at subdividing 1 into 6 and selling off the land. Some accountants say pre cgt is no tax, others say a subdivision of that size is deemed as a business venture and is treated as income tax??

Hard to get straight answers so any advice is welcomed.

Cheers

 

Whats the extent of the subdivision and works involved ?

 

Well it’s a full subdivision, so earthworks, retaining walls and all drainage and electrical devices connected. Potentially keeping the house

 

in Statham & Anor v FCT the taxpayer had 270 hectares of farmland they subdivided into 105 lots in four stages. So not exactly small.

The involvement in the subdivision was limited.

- Only limited clearing involved and no construction on the land
- roads, electricity and sewerage works all done by contractors engaged and managed by Council
- no borrowings
- executor maintained his day job
- land was sold by a sales agent

if the development is done along these lines then maybe a mere realisation and on capital account.

just be aware a capital improvement made to a pre-CGT asset will be treated as a separate asset (post-CGT asset) under section 108-70 of the ITAA 1997 and will be subject to CGT if certain conditions are met. These conditions are met when a CGT event happens to the original asset and the cost base of the capital improvements is:

• more than the improvement threshold for the year in which the event happens, and

• more than 5% of the amount of money and property you receive from the event.

If the capital improvement expenditure thresholds attributable to each individual block within the subdivision are exceeded, then capital improvement to that block will be a separate post-CGT asset. The relevant year for determining the appropriate improvement threshold is in the year that the asset is sold and the improvement threshold is adjusted each year to take account of inflation.

Why not apply for a Private Binding Ruling to get certainty. can do it yourself just fill in the form online

Applying for a private ruling

 

Will depend on the circumstances

 

Hi Mike,

From my understanding to have seperate titles we must do all the services and blocks must be ready for sale, not sure if this is correct or not. I will definitely look into the private ruling though. Do you take mew appointments?

 

Ryan

Sure happy to chat

 

The recent ATO draft guidance provides a warning for a private ruling request. The ATO says that they will weigh ALL of the facts into consideration to determine their views. Sufficient and complete disclosure must be made so that he ATO can formulate this view. Leaving out little facts or objective issue can mean a ruling is of no value. The ATO can revisit it and tear it up at any time likely without time limitation. So its not quite so binding.

Disposal of the whole of the land with a DA but without civils, subdivision and title changes may provide some degree of improved outcome. More likely a mere realisation but this may depend on what past activities and efforts have occurred. The degree and timing of the efforts, sophistication and planning may be factors to consider

 

I wouldnt proceed without a ruling.