Private ruling: Capital gains tax
Date of advice: 7 July 2023
Published: 28 August 2023
Ruling period: Year ended 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Is the first element of each block of land the cost of the purchase of the land apportioned between each block? | A1: Yes.

Relevant facts and circumstances: You and your spouse purchased a block of land a number of years ago. You and your spouse constructed a house on the land. The house was your family home. In a recent year you and your spouse demolished your existing house as it had become too large for you and subdivided the block. The sub-divided titles were issued. One of the blocks has been sold. You and your spouse have engaged a builder to re-build a smaller main residence on one lot and sell the other vacant lot to help finance the cost of the build. There was no development on the vacant subdivided lot that was beyond the level necessary to secure council approval for the subdivision. It was not entered into with the view to making a profit or carrying on an enterprise, rather to fund the construction of the new dwelling. There was no formal business plan and you and your spouse have not undertaken any property development in the past. You and your spouse consider this subdivision to be a one off event. You and your spouse have incurred demolition, survey and other costs associated with the normal subdivision of a property that will be apportioned between the resulting blocks on a reasonable basis. You and your spouse will construct and occupy the new dwelling as soon as possible and within a few years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 112-25

Reasons for decision: Summary: Subdivision of land Under section 112-25 of the Income Tax Assessment Act 1997 (ITAA 1997), the subdivision of land itself does not constitute a CGT event if there is no change of ownership. It is at the time of the disposal that any capital gain or capital loss may arise. Where a property that was acquired as one asset is subdivided, the new assets are treated as though they were always separate assets. The subdivided blocks will retain the acquisition date of the original property in accordance with the principles contained in Taxation Determination TD 2000/10. You will use the acquisition cost for the initial block of land and apportion this amount on a reasonable basis for the subdivided block which has been sold in order to calculate your capital gain.