Private ruling: Capital gains tax - demolition, subdivision and disposal of vacant blocks of land
Published: June 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the capital gain made on the disposal of the two subdivided vacant blocks of land disregarded, when the existing original property was acquired prior to 20 September 1985? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You and your former spouse acquired a vacant block of land (property A) prior to 20 September 1985. You and your former spouse constructed a dwelling on property A, which was your main residence. After 20 September 1985, you purchased a property (property B) with money you received from an inheritance from your relative. You and your former spouse separated and your former spouse continued to reside at property A and you moved into property B. For a number of years your former spouse has been paying you a sum of money to compensate you for loss of income as you as have a 50% share in property A. You and your former spouse are going to demolish the existing dwelling at property A and subdivide the property into two blocks. You and your former spouse are going to dispose of both blocks. You and your former spouse will make a capital gain on the disposal of these blocks of land.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-7 | Income Tax Assessment Act 1997 Section 108-55 | Income Tax Assessment Act 1997 Section 104-20 | Income Tax Assessment Act 1997 Section 112-20

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. Generally, you can disregard any capital gain or capital loss you make on an asset you acquired before 20 September 1985. Capital gains tax (CGT) event A1 is the most common CGT event and happens upon the disposal of a CGT asset. The disposal of the subdivided blocks will constitute CGT event A1. For CGT purposes, if you are a joint tenant, you are treated as if you are tenants in common owning equal shares in the asset. In your case, you and your former spouse are treated as have an equal 50% interest in property A. | Detailed Reasoning - Demolition: A dwelling and land are considered to be a single asset unless one of the provisions of section 108-55 of the Income Tax Assessment Act 1997 applies. In your case, the asset in consideration is your original main residence on your land, which is to be demolished. The demolition of the dwelling at property A will result in CGT event C1 happening to part of the asset. However, as you acquired your ownership interest in property A prior to 20 September 1985, any capital gain or capital loss made on the demolition of the dwelling is disregarded. | Detailed Reasoning - Subdivision: Subdivision of land does not constitute a CGT event as there is no change of ownership. Where a property that was acquired as one asset is subdivided, the new assets are treated as though they were always separate assets. The acquisition date of the two subdivided blocks will retain the acquisition date of property A. Therefore, any capital gain you make on the disposal of the two blocks is disregarded as the subdivided blocks retain their acquisition date, prior to 20 September 1985.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.