Private ruling: Capital gains tax - main residence - subdivided land
Date of advice: 22 February 2019
Published: May 2019
Ruling period: 1 July 2018 to 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the sale of all of the property be exempt from capital gains tax (CGT)? | A1: No

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 partner purchased rural zoned land after 20 September 1985. The next year you built a house on the property. This was your main residence for the entire ownership period. The property was never used for investment purposes. You own another property. The first property has become too large to maintain. When you purchased the property it was never your intention to sell the property for financial gain. You will sell the two allotments individually. You will obtain more profit this way. To subdivide the land you engaged in three different entities to prepare and provide approval to subdivide the allotment into two blocks. First - the development plan consent was granted to subdivide the land from one allotment into two allotments. Second - the land subdivision consent was granted as well as the development approval. Third, the water connected to the second allotment. And last you submitted the plan deposit.

Relevant legislative provisions: Income Assessment Act 1997 section 118-110 | Income Assessment Act 1997 section 118-120 | Income Assessment Act 1997 section 118-165 | Income Assessment Act 1997 subsection 112-25(3)

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. Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) states the capital gain or loss you make in relation to a CGT asset that is a dwelling is disregarded if certain conditions are met. These conditions are that you must be individual, ‘the dwelling was your main residence throughout your ownership period’, the dwelling is situated on less than two hectares, and the dwelling did not pass to you through a deceased estate. Section 118-120 of the ITAA 1997 specifies that the main residence exemption can extend to adjacent land where: ● the same CGT event happens to both the land and the dwelling ● the land was ‘used primarily for private or domestic purposes in association with the dwelling’ ● the total combined area for the dwelling and adjacent land is less than two hectares. Section 118-165 of the ITAA 1997 provides that the main residence exemption does not apply to the sale of land if the CGT event (the disposal) does not also happen in relation to the dwelling. | Detailed Reasoning - Subdivision of land: If you subdivide a block of land, each block that results is registered with a separate title. For CGT purposes, the original land parcel is divided into two or more separate assets. Subdividing land does not result in a CGT event if you retain ownership of the subdivided blocks. Therefore, you do not make a capital gain or a capital loss at the time of the subdivision. However, you may make a capital gain or capital loss when you sell the subdivided blocks. The date you acquired the subdivided blocks is the date you acquired the original parcel of land. The cost base of the original land is divided between the subdivided blocks on a reasonable basis. | Summary: In relevance to your circumstances, you have shown the dwelling was your main residence throughout your ownership period and was not used for investment purposes. You have subdivided the land resulting in selling the two allotments on separate titles. This was done with the intention of earning more profit then selling the dwelling and land as is. Due to selling the allotments individually the main residence exemption will only apply to the allotment that contains the dwelling. If you own more than one dwelling during a particular period, only one dwelling can be your main residence at one time. The sale of the second allotment will be subject to capital gains tax. Note that even if you are merely realising an asset, any capital gain that arises on the disposal of that asset would be included in your assessable income.

Reasons for Decision: These reasons for decision accompany the Notice of private ruling.