Edited version of your written advice

Authorisation Number: 1051193170954

Date of advice: 21 February 2017

Ruling

Subject: Application of Capital Gains Tax (CGT) when subdividing a Pre-CGT asset.

Question 1

Do you disregard any capital gain or capital loss you make upon the sale of subdivided land acquired prior to 20 September 1985?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You and your spouse purchased a property prior to 20 September 1985.

You have lived in that property from that date, until now.

You have previously sold portions of that land.

There are two buildings on this land, both existing at date of purchase. You have used one of these dwellings as your residence and the other as a hobby studio and storage.

You do not conduct any business on the site.

You now wish to retain the portion of the land with the residence and subdivide and sell of the remainder of the land in two individual allotments.

No improvements have been made to the land.

No extensions will be made to the existing building, however some cabinetry will be placed into one of the rooms.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20,

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 Subsection 104-10(5) and

Income Tax Assessment Act 1997 Section 112-25.

Reasons for decision

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event.

The most common event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else. You are deemed to have disposed of an asset if a change in ownership occurs from you to another entity.

The subdivision of land does not constitute a CGT event. If 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 blocks. Therefore, you do not make a capital gain or capital loss at the time of subdivision.

However, the sale of the subdivided blocks constitutes CGT event A1.

Generally, you can disregard any capital gain or capital loss you make on an asset you acquired before 20 September 1985.

In your case, as there is no change of ownership at the time of subdivision, the subdivided blocks will retain their original acquisition date. As you acquired the original block of land prior to 20 September 1985, any capital gain or capital loss you make upon the sale of your subdivided blocks is disregarded.

Capital Improvements and Depreciating assets

If you make a capital improvement to a CGT asset acquired before 20 September 1985, it will be treated as a separate asset if the cost base is:

● more than the improvement threshold for the income year in which the event happens, $145,401 for the 2016/17 income year and

● more than 5% of the amount of money and property you receive from the disposal event.

In your case you have told us that you will be installing cabinetry in one of the existing buildings on your property. If the value of the cabinetry is less than $145,401, or 5% of the market value of the property it will not be considered to be a separate CGT asset.

Further information on building extensions

Although you have identified that you do not intend on making any extensions to the existing buildings, it is important to consider the implications if you chose to do so.

Generally speaking it is probable that any extensions would exceed the capital improvements threshold as mentioned above. However it is unlikely that it would amount to being more than 5% of the amount received. Therefore any extension would not be considered a separate CGT asset and would form part of the existing asset.

It is important that the full picture is considered prior to contemplating a building extension.