Private ruling: Capital gains tax - subdivision and disposal of main residence
Published: August 2013
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the capital gain or capital loss you will make on the disposal of your main residence disregarded? | 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. After 20 September 1985, you purchased a block of land. The total area of the land exceeds two hectares. The following year you constructed a dwelling which became your main residence. You currently still reside there. You are going to subdivide your property into two blocks. One block will contain your main residence on more than one hectare (block one) and other block (block two) will comprise of more than one hectare. You will dispose of block one. Upon disposing of block one you will then construct your new home on block two.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 112-25 | Income Tax Assessment Act 1997 Section 118-110

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. The most common capital gains tax (CGT) event (CGT event A1) happens if you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract - when the change of ownership occurs. CGT event A1 will occur upon the disposal of block one. | Detailed Reasoning - Subdivision of land: Subdivision itself is not a CGT event. If you subdivide a block of land, the CGT provisions treat the subdivided blocks as though they were always separate assets, as each is registered with a separate title. The acquisition date of the subdivided block will be your original purchase date. However, the cost base of the original land is apportioned between the subdivided blocks on a reasonable basis. The enclosed Taxation Determination TD 97/3 provides that the Commissioner will accept any reasonable method of apportioning the original cost base between the new blocks, such as on an area basis or relative market value basis. | Detailed Reasoning - Main residence: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to your main residence. To get the full exemption: § the dwelling must have been your home for your entire ownership period § you must not have used the dwelling to produce assessable income, and § any land on which the dwelling is situated must be two hectares or less. In your case, you need all the above criteria. Therefore, any capital gain or capital loss made on the disposal of lot one is disregarded.