If you subdivide a block of land, each resulting block is registered with a separate title. For capital gains tax (CGT) purposes, the original land parcel is divided into two or more separate assets.
The profit from selling subdivided land may be a capital gain or ordinary income, depending on the circumstances.
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Conditions on subdivided land
If you subdivide a block of land and sell the new block, any profit is generally treated as a capital gain subject to CGT.
However, any profit you make is treated as ordinary income (not a capital gain) if both of the following apply:
- your intention or purpose in subdividing was to make a profit
- the profit was made in the course of carrying on a business, a business operation or commercial transaction.
This is true even if you aren't in business (for example, if it's a one-off transaction by an individual).
For more information, see TR 92/3: Income tax: whether profits on isolated transactions are income
Capital gains tax on subdivided land
When you subdivide a block of land for CGT purposes:
- the original land parcel is divided into two or more separate assets
- you make a capital gain or capital loss only when you sell the subdivided blocks.
To work out your capital gain or capital loss, 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.
When your home is affected
If you sell any land separately from your home, it is subject to CGT. Only land sold with the home that is your main residence can receive the main residence exemption.
Land is adjacent to your home if it is close to, near, adjoining or neighbouring it.
GST treatment of subdividing
You may have GST obligations and entitlements if you subdivide and sell land:
- with the intention of making a profit
- in the course of carrying on a business
- as a business or commercial transaction.
If you're unsure whether your subdivision falls into the above categories, write to us and request a private ruling to determine your tax position.
Even with a one-off transaction, you may still be required to register for GST because your transaction may have the characteristics of a business deal.
Once registered for GST, you will:
If you subdivide land and sell the new block, the profit may be treated as a capital gain or as ordinary income, depending on the circumstances.
- need to include GST in the price of goods you sell, including land that you've subdivided
- be able to claim credits for the GST included in the price of most of your business purchases (subject to the normal GST rules)
- be able to report these transactions by completing an activity statement.