Private ruling: CGT- subdivision - sale of one block
Ruling period: Period ending 30 June 2010, and | Period ending 30 June 2011
Date scheme commenced: 2008

Ruling: Q1: Are you, as trustee, entitled to the 50% discount concession on the sale of one block of land from a subdivision that you have owned for over a year? | A1: No.

Relevant facts and circumstances: You purchased a property in 2008 which you have since demolished the original dwelling and subdivided. The intended purpose of purchasing the original property was to develop it into several dwelling. You intended to maintain all subdivided blocks and use them to derive rental income. Due to the Global Financial Crisis no construction work has commenced on the proposed dwellings and you are now forced to sell one as a single land package. The proceeds from the sale of one block will be retained within the trust and used to develop the other subdivided blocks which you still intend to develop and use to derive rental income. The beneficiaries will not be entitled to the net capital gain. Detailed reasoning Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you make a capital gain or a capital loss if, and only if, a CGT event happens to a CGT asset. Land and buildings are specifically listed as CGT assets under section 108-5 of the ITAA 1997. If you have an interest in a CGT asset, that interest is considered to be a CGT asset of yours under subsection 108-5(2) of the ITAA 1997. Taxation Determination TD 97/3 gives the Commissioner's view on the disposal of subdivided land as the disposal of an asset in its own right. A CGT event occurs when one or more of the subdivided blocks is disposed of. The date you acquired the subdivided blocks is the date you acquired the original parcel of land and the cost base of the original land is divided between the subdivided blocks on a reasonable basis. In your case, you purchased the original parcel of land in June 2008 and have since subdivided the land into blocks. These blocks are treated as an asset in its own right and are subject to capital gains or losses when sold. Under section 115-5 of the ITAA 1997, a discount capital gain applies if the following requirements are satisfied: · you are an individual, a trust or a complying superannuation entity · a CGT event happens to an asset you own · the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999 · you acquired the asset at least 12 months before the CGT event, and · you did not choose to use the indexation method. Under the discount method you reduce your capital gain by the discount percentage. For individuals and trusts, the discount percentage is 50%. The capital gain is reduced only after you have applied all the capital losses for the year and any unapplied net capital losses from earlier years. In your case when you sell the blocks of land you will be entitled to a discount of 50% after you have applied all the capital losses for the year and any unapplied net capital losses from earlier years. This is provided you do not choose to use the indexation method to calculate your cost base.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 99A, | Income Tax Assessment Act 1997 Section 102-20, | Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Section 108-5, | Income Tax Assessment Act 1997 Subsection 108-5(2), | Income Tax Assessment Act 1997 Section 112-25, | Income Tax Assessment Act 1997 Section 115-5, | Income Tax Assessment Act 1997 Section 115-10, | Income Tax Assessment Act 1997 Section 115-15, | Income Tax Assessment Act 1997 Section 115-20, | Income Tax Assessment Act 1997 Section 115-25, | Income Tax Assessment Act 1997 Section 115-225, and | Income Tax Assessment Act 1997 Section 115-100.


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