Private ruling: CGT - subdivision
Published: March 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: Q1: Will a capital gains tax (CGT) event occur if the property is subdivided? | A1: No | Q2: Will any capital gain or loss that arises as a result of the subsequent sale of the lots be disregarded? | A2: Yes

Relevant facts and circumstances: You acquired a property before 1985. You intend to subdivide the property. You intend to sell part of the subdivided land and retain part of the subdivided land.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Paragraph 104-10(5)(a) | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 112-25

Reasons for decision: Summary: Land, or an interest in land, is a CGT asset under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997). The sale of the land is a disposal which gives rise to CGT event A1 under section 104-10 of the ITAA 1997. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. When CGT event A1 happens to a CGT asset which was acquired before 20 September 1985, any capital gain or capital loss you make will be disregarded (paragraph 104-10(5)(a) of the ITAA 1997). If you subdivide a block of land, each block that results is registered with a different title. For CGT purposes, the original land parcel is divided into two or more assets. Subdividing land does not result in a CGT event if you retain ownership of the subdivided blocks (section 112-25 of the ITAA 1997). Therefore, you do not make a capital gain or a capital loss at the time of the subdivision. In the event when the subdivided blocks are sold, the land which resulted from the subdivision maintains its original acquisition date and pre-CGT status. As the subdivided lots maintain their pre-CGT status, any capital gain or loss that results on their disposal is disregarded in accordance with paragraph 104-10(5)(a) of the ITAA 1997. Accordingly in your case, you can disregard any capital gain or loss made on the sale of your subdivided land.