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Ruling

Subject: Capital gains tax- Subdivision- disposal of vacant land

Question 1:

Is the first element of the cost base of your vacant block of land its market value as calculated at the time of the subdivision?

Answer:

No.

Question 2:

Will the capital gain made on the disposal your vacant land be disregarded?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1st July 2010

Relevant facts and circumstances

You purchased a dwelling sometime after 20 September 1985 and occupied it as your main residence.

You have subdivided the back half of the land that was attached to the dwelling.

You plan to dispose of the vacant land.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20,

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 Section 115-10,

Income Tax Assessment Act 1997 Section 115-15,

Income Tax Assessment Act 1997 Section 115-20,

Income Tax Assessment Act 1997 Section 115-25,

Income Tax Assessment Act 1997 Section 118-110 and

Income Tax Assessment Act 1997 Section 112-25.

Reasons for decision

Question 1

Detailed reasoning

Subdivision of land

A capital gain or capital loss may arise if a capital gains tax (CGT) event happens to a CGT asset.

When 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. Where the titles to the subdivided blocks show the same ownership interest as the original land, each subdivided block retains its original acquisition date, that is, the date that the original block was purchased. The subdividing of the land is not itself a CGT event.

The cost base of the original property will be apportioned between the subdivided blocks on a reasonable basis. The Commissioner will accept any reasonable method of apportioning the original cost base between the new blocks (that is, on an area basis or relative market value basis).

 A reasonable apportionment of the original cost of the land itself can usually be achieved on an area basis if all the land is of similar size and market value or on a relative market value basis if this is not the case.

In your situation, as you have subdivided your block, the acquisition date of the vacant block will be the date that you originally purchased the property. You will need to apportion the original cost base of the property between the two subdivided blocks.

Question 2

Detailed reasoning

Disposal of land

The most common CGT event is CGT even A1. This occurs when an entity disposes of their ownership interest in an asset. The sale of a vacant block of land would be considered to be a CGT event A1

Under certain circumstances, you may be able to disregard a capital gain or capital loss that is made on the sale of an asset. For example, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence. The exemption is also extended to include up to 2 hectares of land that is adjacent to the dwelling.

Except for the disposal of vacant land after the accidental destruction of a main residence, there is no exemption that allows for a capital gain or capital loss to be disregarded upon disposal of vacant land. The Commissioner does not have any discretion to allow vacant land to be treated as a main residence in any other circumstances.

In your case, as the vacant land was acquired after 20 September 1985 and will not be disposed of with your dwelling, any capital gain or capital loss made on the disposal will not be disregarded.

Note: As you are an individual, you plan to dispose of the land after 21 September 1999, you held the land for at least 12 months, and provided you do not calculate your cost base with reference to indexation, any capital gain made on the disposal of the vacant land is a discount capital gain. In your case you are entitled to reduce the capital gain by 50% when working out your net capital gain.

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