Tax Tip 175: Subdividing Land and CGT

Discussion in 'Accounting & Tax' started by Terry_w, 16th Jun, 2018.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Tax Tip 175: Subdividing Land and CGT


    Subdivision occurs when you change or split one title of land into 2 or more titles. It is like cutting up a cake into different pieces.

    Where the ownership of the original block and the end blocks remains the same then there is no CGT event triggered.

    After subdivision each block will then be a separate asset for CGT purposes. The cost base of each assets will be worked out on the basis of the portion of the land cost relating to that title as well as a portion of other costs such as conveyancing, stamp duty etc, but only the portion that relates to the new block. If there is a house on one of the blocks this must be taken into account too.


    Example

    Frank owns a 2200 sq m block of land and subdivides this into 2 identically sized blocks of 1100 sq m each. The end owner is Frank and the original owner is Frank, so there was no CGT even triggered by separating the titles. As the blocks are identical the cost base of each is 50% of the original cost base.


    Note that the above applies only where the land remains held on capital account. If your use of the property changes it could go from capital account to revenue account and there could be a deemed disposal and CGT could be triggered.

    Also note where ownership changes there will be a CGT event triggered.
     
  2. Random Username

    Random Username Well-Known Member

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    What if you had a PPOR built over two blocks on separate titles, and had the boundaries re-aligned to have one block with the house and one vacant?

    It's not a subdivision as it's not creating any extra blocks.

    What would the CGT implications be if the vacant block was sold?

    Thanks.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That's is a subdivision so not cgt event until sold. No main residence cgt exemption either and gst needs to be considered as does if on revenue account. Seek specific tax advice
     
  4. Harry30

    Harry30 Well-Known Member

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    Even with 50/50 land size split, can the 2 blocks be given different values. For example, a waterfront block is subdivided in a battle axe way 50/50 with one block directly on the water with the other block facing the street as an example. The two would have quite different values.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes
     
  6. Random Username

    Random Username Well-Known Member

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    Thanks for the reply but I don't understand what you said, other than the last sentence.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Because i replied on a phone probably!

    Readjusting titles is not a CGT event unless the ownership changes hands.
    No main residence exemption can apply to the sale of vacant land - as no residence
    sale of vacant land could be a taxable supply and you may need to remit GST to the ATO

    All the above is if it is on capital account, if on revenue account then it will be different.
     
  8. Random Username

    Random Username Well-Known Member

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    Thanks Terry, In my case I will leave as is.

    I think when it's the only big block left in the area being over run with units, it's probably worth more as one piece.

    When I can no longer handle it, I should be able to sell with the CGT exemption.