Private ruling: Subdivision of land
Published: October 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the capital gain or capital loss on the disposal of two subdivided vacant blocks of land disregarded, when the existing original property was acquired prior to 20 September 1985? | A1: Yes.

Relevant facts and circumstances: You purchased a property before 20 September 1985. You intend to demolish the existing house and subdivide the land into two vacant blocks. The house, which is to be demolished, came with the property and has not hand any major improvements to it that would consider it a separate CGT asset. The blocks will have water and electricity connected. You intend to sell the two vacant blocks.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 104-10 | Income Tax Assessment Act 1997 (ITAA 1997) section 104-20 | Income Tax Assessment Act 1997 (ITAA 1997) section 108-55

Reasons for decision: Detailed Reasoning - Demolition: Capital gains tax (CGT) event C1 happens if a CGT asset you own is lost or destroyed. In your case, you intend to demolish the existing house on the property in order to subdivide it into two blocks of land. Accordingly, this demolition will result in a CGT event C1 happening. However, because you acquired the property prior to 20 September 1985, any capital gain or capital loss made on the demolition of the dwelling is disregarded under subsection 104-20(4) of the ITAA 1997. | Detailed Reasoning - Subdivision: The most common 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. 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. CGT event A1 will occur upon the disposal of the two subdivided blocks. You will make a capital gain if the capital proceeds from the disposal of the block exceed the cost base of the block. You will make a capital loss if the capital proceeds are less than the reduced cost base of the block. Subsection 104-10(5) of the ITAA 1997, however, contains an exception, where any capital gain or capital loss made is disregarded if the asset was acquired before 20 September 1985. In your case, you acquired the property, which you intend to subdivide, before 20 September 1985. Therefore, the subdivided blocks will also have been acquired before 20 September 1985. Accordingly, any capital gain or capital loss you make on the disposal of each subdivided block will therefore be disregarded for CGT purposes.