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Ruling
Subject: Capital gain tax and property subdivision
Question:
Will you be liable for capital gains tax (CGT) on the disposal of your property?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You and your spouse purchased your principle place of residence prior to 1985, consisting of a house on approximately 3 hectares.
You and your spouse have operated a primary production business activity on the property for approximately ten years, under a partnership structure.
A developer now wants to purchase the property, and has a draft plan to sub-divide the property into X lots.
The terms of the agreement would be:
· 5% deposit on signing
· 20% payable within 14 days of the developer obtaining planning permission for the sub-division; and
· the balance in approximately three years or by instalments from the released lots, which ever occurs first.
Under the agreement, you will retain title to each of the lots until sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 6-5.
Income Tax Assessment Act 1997 - Section 15-15.
Income Tax Assessment Act 1997 - Section 104-10.
Income Tax Assessment Act 1997 - Subsection 104-10(5).
Reasons for decision
CGT event A1 in section 104-10 of the ITAA 1997, relating to the disposal of a CGT asset, will happen when you dispose of your property or each subdivided block. You will make a capital gain if the capital proceeds from the disposal of the block are more than the cost base of the block. You will make a capital loss if those capital proceeds are less than the reduced cost base of the block.
Subsection 104-10(5) of the ITAA 1997, however, contains an exception, where any capital gain or capital loss made is disregarded if the asset was acquired before 20 September 1985.
Where a block of land is subdivided, the date you acquired the original parcel of land is also the date you are considered to have acquired the subdivided blocks.
In your case, you acquired the original parcel of land prior to 1985; therefore, any subdivided blocks will also be considered to have been acquired prior to this date.
As a result, regardless of whether you dispose of your property before or after the sub-division, any capital gain or capital loss you make on the disposal will be disregarded for CGT purposes.