Subdivision of land



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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 and the cost base of the original land is divided between the subdivided blocks on a reasonable basis.

When the profit is ordinary income

You may have made a profit from the subdivision and sale of land which occurred in the ordinary course of your business or which involved a commercial transaction or business operation entered into with the purpose of making a profit. In this case, the profit is ordinary income (see Taxation Ruling TR 92/3 - Whether profits on isolated transactions are income). Any capital gain from the land is reduced by the amount otherwise included in your assessable income.

Example - Land purchased before 20 September 1985, land subdivided after that date and house built on subdivided land

In 1983, Mike bought a block of land that was less than 2 hectares. He subdivided the land into two blocks in May 2003 and began building a house on the rear block, which he finished in August 2003. He sold the rear block (including the house) in October 2003 for $150,000. Mike got a valuation from a qualified valuer who valued the rear block at $70,000 and the house at $80,000. The construction cost of the house was $65,000.

Mike acquired the rear block before 20 September 1985, so it is not subject to CGT. As the new house was constructed after 20 September 1985 on land purchased before that date, the house is taken to be a separate asset from the land. Mike is taken to have acquired the house in May 2003 when he began building it. Mike made a capital gain of $15,000 ($80,000 - $65,000) when he sold the house because he did not use it as his main residence.

As Mike had owned the house for less than 12 months, he used the 'other' method to calculate his capital gain.

Example - Dwelling purchased on or after 20 September 1985 and land subdivided after that date

Kym bought a house on a 0.1 hectare block of land in June 2003 for $250,000. The house was valued at $80,000 and the land at $170,000. Kym lived in the house as her main residence. In January 2004, she subdivided the land into two blocks of equal size. She incurred $10,000 in survey, legal and subdivision application fees and $1,000 to connect water and drainage to the rear block. In March 2004, she sold the rear block for $100,000.

As Kym sold the rear block of land separately, the main residence exemption does not apply to that land. She contacted several local real estate agents who advised her that the value of the front block was $15,000 higher than the rear block. Kym apportioned the $170,000 original cost base into $77,500 for the rear block (45.6%) and $92,500 for the front block (54.4%).

The cost base of the rear block is calculated as follows:

Cost of the land


45.6% of the cost of survey, legal and application fees


Cost of connecting water and drainage




The capital gain on the sale of the rear block is $16,940. As Kym had owned the land for less than 12 months, she used the 'other' method to calculate her capital gain.

Kym will get the full exemption for her house and the front block if they are used as her main residence for the full period she owns them.

End of example
Last modified: 04 Mar 2016QC 27527