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  • Capital  gains tax

    If you subdivide a block of land, each block that results is registered with a separate title. For capital gains tax purposes, the original land parcel is divided into two or more separate assets.

    Subdividing the land does not result in a CGT event if you retain ownership of the subdivided blocks. This means you do not make a capital gain or a capital loss at the time of the subdivision. You make a capital gain or capital loss when you sell the subdivided blocks.

    For the purposes of working out your capital gain or capital loss, 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.

    Further Information

    For more information, refer to Subdividing and amalgamating land.

    End of further information

    When your home is affected

    If you subdivide land surrounding or adjacent to your home (main residence), your eligibility for the capital gains tax main residence exemption will be affected.

    Land is adjacent to your home if it is close to, near, adjoining or neighbouring it.

    If you sell any land separately from your home, the land is not exempt from capital gains tax. It is only exempt when sold with the home that is your main residence.

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

    Kym bought a house on a 0.2 hectare block of land in June 2008 for $350,000. The house was valued at $120,000 and the land at $230,000. Kym lived in the house as her main residence. She incurred $12,000 in stamp duty and legal fees purchasing the property.

    Kym found the block was too big for her to maintain. In January 2009, 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 2009, she sold the rear block for $130,000.

    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 $230,000 original cost base into $107,500 for the rear block (46.7%) and $122,500 for the front block (53.3%). Kym incurred $3,000 legal fees on the sale.

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

    Cost of the land

    $107,500

    46.7% of the $12,000 stamp duty and legal fees on the purchase

    $5,604

    46.7% of the $10,000 cost of survey, legal and application fees

    $4,670

    Cost of connecting water and drainage

    $1,000

    Legal fees on sale

    $3,000

    Total

    $121,774

    The capital gain on the sale of the rear block is $8,226. She calculates this by subtracting the cost base ($121,774) from the sale price ($130,000). As Kym had owned the land for less than 12 months, she uses 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.

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    For more information, refer to Is the dwelling your main residence?

    • Last modified: 01 Aug 2012QC 23641