Edited version of your written advice

Authorisation Number: 1051283693993

Date of advice: 18 September 2017

Ruling

Subject: Capital gains tax - subdivision - change of title

Question:

Will a capital gains tax (CGT) event occur when land is subdivided into a number of blocks?

Answer:

No.

Question:

Will a CGT event occur when the titles to the separate blocks of land are transferred into different names?

Answer:

Yes.

This ruling applies for the following periods:

Year ending 30 June 2018

The scheme commenced on:

1 July 2017

Relevant facts

You and your spouse acquired a dwelling after 20 September 19XX as joint tenants.

The dwelling has been used to produce assessable income for the entire period of your ownership.

You will demolish the existing dwelling and construct two dwellings on the land.

You will subdivide the land and two new titles will be issued.

The titles will issue to you and your spouse separately.

The new dwellings will be used to produce assessable income.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 103-5

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 112-25

Income Tax Assessment Act 1997 Section 116-20

Reasons for decision

The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset and 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.

Subdividing land

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.

Subdividing land is not a CGT event if you retain ownership of the subdivided blocks, so you don't make a capital gain or loss at the time of the subdivision.

However, you may make a capital gain or loss when you sell or transfer your ownership interest in the subdivided blocks to another entity or individual.

You are taken to have disposed of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act, event or operation of law. A change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

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.

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.

Tenants in common

For CGT purposes, joint tenants are treated as if they are tenants in common owning equal shares in the asset.

If tenants in common subdivide land and transfer their interests so that they hold ownership interests in different titles, each is liable for CGT. A disposal occurs because the transfer of interests between the tenants in common amount to a change in the legal and beneficial ownership of those interests.

In your case, the change in ownership will occur when new titles are registered in you and your spouse’s name individually and not as joint tenants.

Market value substitution

Generally, the capital proceeds are the amount of money that you receive for the disposal of your interest in the asset. However, when you receive no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset at the time the CGT occurred.

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