Private ruling: Capital gains tax - subdivision, main residence and future disposal
Published: May 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the capital gain made on the disposal of block two disregarded? | 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 purchased a property which you established as your main residence approximately X years ago. This year you subdivided your property into two equal sized blocks, block one and block two. Block one has your original home on it. You will build a new home on block two which will take Y months to build. You will move into the home on block two and establish it as your main residence. You will dispose of block one within one month of moving into your new home on block two. You will dispose of block two in the future for a capital gain.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 112-25 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-130 | Income Tax Assessment Act 1997 Section 118-140 | Income Tax Assessment Act 1997 Section 118-150

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. The most common capital gains tax (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. CGT event A1 will occur upon the disposal of block one and block two. | Detailed Reasoning - Subdivision of land: 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. However, the cost base of the original land is apportioned between the subdivided blocks on a reasonable basis. The enclosed Taxation Determination TD 97/3 provides that the Commissioner will accept any reasonable method of apportioning the original cost base between the new blocks, such as on an area basis or relative market value basis. | Detailed Reasoning - Main residence: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to your main residence. To get the full exemption from CGT: · the dwelling must have been your home for your entire ownership period · you must not have used the dwelling to produce assessable income, and · any land on which the dwelling is situated must be two hectares or less. For the main residence purposes, the ownership period of a residential property runs from when you obtain legal ownership of it until that legal ownership ends. In general, you can only have one main residence at any one time, which will be where you are living. However, there are a number of main residence provisions that can treat a residential property as your main residence at a time when you are not actually living there. | Detailed Reasoning - Changing main residences: The changing of main residences provision treats both properties as your main residence for a maximum period of six months. If the period that you own both properties exceeds six months, you treat the new property as your main residence for the last six months that you also owned the former property. | Detailed Reasoning - Construction of dwelling: One of these provisions that can apply is if you build a dwelling on land you own. Generally, if you build a dwelling on land you already own, the land does not qualify for an exemption until the dwelling actually becomes your main residence. However, you can choose to treat the land as your main residence for the shorter of four years before the dwelling actually becomes your main residence or the period starting when you acquired your ownership interest in the land and ending when the dwelling becomes your main residence. You can only make this choice if the dwelling you build becomes your main residence as soon as practicable after the work is finished and it continues to be your main residence for at least three months. Taxation Determinations TD 2000/13 and TD 2000/14 discuss the application of the CGT provisions to arrangements similar to those which you are planning to undertake. A copy of each of these Determinations is enclosed for your reference. How these determinations apply to your situation | Detailed Reasoning - Taxation Determination TD 2000/13: This determination applies where you do not elect to treat block two as your main residence before you move into it. By making this election this entitles you to the full main residence exemption on the disposal of block one for your entire ownership period. However, you will only be entitled to a partial main residence exemption on the disposal of block two, even taking into consideration the three months you expect to take when changing main residences. You will not qualify for the main residence exemption for the period starting from when you acquired the land to the time you moved into block two. | Detailed Reasoning - Taxation Determination TD 2000/14: This determination applies where you elect to treat block two as your main residence prior to the time that it actually becomes your main residence. From the time you choose to treat block two as your main residence, you cannot treat block one as your main residence even though you were still residing there except for the three months when you changed main residences. Therefore, block two will be taken to be your main residence up to four years prior to it actually becoming your main residence. Regardless of what choice you make block one will be your main residence for only part of your ownership period. Therefore, you will be entitled to a partial main residence exemption upon its disposal. For further information or information on how to calculate your capital gain or capital loss is available on our website - www.ato.gov.au.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.