Edited version of private advice

Authorisation Number: 1052196933727

Date of advice: 30 November 2023

Ruling

Subject: Subdivision of land

Question 1

If land was subsequently subdivided from the deceased's main residence after Date of Death (DOD) and settled within two years of DOD, would any capital gain be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. Any capital gain would not be disregarded under section 118-195 of the ITAA 1997 for the vacant blocks of land that were subsequently subdivided from the deceased's main residence.

After the subdivision, the CGT provisions treat the subdivided blocks of land as though they were always separate assets, as each is registered with a separate title (section 112-25 of the ITAA 1997). The vacant subdivided blocks will be sold separately to the dwelling and therefore the main residence and adjacent land exemption will not be applicable to the vacant blocks of land.

Question 2

If land was subsequently subdivided from the deceased's main residence after DOD and settled after two years from DOD, would the cost of the blocks of land be referenced to the market value at DOD of the deceased?

Answer

Yes. You are taken to have acquired the land on the day the deceased died, at the market value on the deceased's DOD as per section 128-15 of the ITAA 1997. The date you acquired the subdivided blocks is the date you acquired the original land. The cost base of each subdivided block (including the block with the dwelling) must be apportioned on a reasonable basis, as per subsection 112-25(3) of the ITAA 1997 and Taxation Determination TD 97/3 Income tax: capital gains: if a parcel of land acquired after 19 September 1985 is subdivided into lots ('blocks'), do Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 treat a disposal of a block of the subdivided land as the disposal of part of an asset (the original land parcel) or the disposal of an asset in its own right (the subdivided block)?

Question 3

Does non-residence days under the formula in section 118-200 of ITAA 1997 start from DOD in relation to subsequently subdivided vacant land?

Answer

Not applicable. After the subdivision, the CGT provisions treat the subdivided blocks of land as though they were always separate assets, as each is registered with a separate title. The vacant blocks of land are not part of the dwelling as defined in section 118-115 and section 118-120 of the ITAA 1997.

Question 4

Are you required to register for GST in relation to the subdivided blocks of land?

Answer

No. You are not required to register for GST in relation to the subdivided blocks of land. Your activities do not amount to an enterprise. You cannot register for GST and the sale of the subdivided property will not be a taxable supply, as per A New Tax System (Goods and Services Tax) Act 1999 section 9-5, subsection 9-20(1), subsection 40-65(1) and section 195-1.

Question 5

Will the disposal of all three blocks of land be treated on capital account rather than revenue account?

Answer

Yes. Any profit made from the subdivision and sale of all three blocks of land will not be assessable as ordinary income under section 6-5 of the ITAA 1997. You will not derive the profit in the course of conducting a business or from engaging in an isolated profit-making scheme with a commercial purpose.

Rather, any profit made from the sale of the three blocks of land is attributable to the mere realisation of the whole land. The amounts received in relation to subdividing the land will be assessable as statutory income under the capital gains tax (CGT) provisions contained in Part 3-1 and Part 3-3 of the ITAA 1997, being a mere realisation of a capital asset.

This ruling applies for the following period:

1 July 20xx to 30 June 20xx

The scheme commences on:

Xx/xx/20xx

Relevant facts and circumstances

You and your late Parent X are Australian residents.

Your late Parent X(the deceased left the main residence (the Property) in Australia to you as the sole beneficiary. You are also the sole executor of your Parent X estate.

Your late Parent Y purchased the Property in 19xx. Your Parent Y passed away in 19xx and the deceased acquired the Property as the sole beneficiary of your late Parent Y estate. The Property was the main residence of the deceased at all times from the acquisition in 19xx to their DOD (post-CGT asset).

The Property is on one land title of xxx m2. You have been advised by the local real estate agents that you can maximise proceeds of sale of the Property by subdividing. The local council will allow a block with the house on it and a further two vacant blocks. You approached a local surveying firm who have drawn up two "proposed land division plans & cost estimates". The surveying firm was able to access land title details on-line and did not charge you for the "proposed land division plans" and cost estimates.

The first proposal is for the house block and one vacant title. The second proposal is for the house block and two vacant titles. You have decided you will go ahead with the house block and two vacant titles. The surveying firm will visit the physical site for the actual survey and charge you according to the "proposed land division plans" and cost estimates. It is unlikely the settlement of the titles will be within two years after DOD. The subdivision, sale and settlement of land is unknown, but likely before 30 June 20XX.

The Property had not been on the market for sale and there are no offers received from potential purchasers.

After the subdivision, you will not be keeping any titles and all blocks are to be sold. You intend to use the proceeds for personal purposes. The subdivision is a simple subdivision and there will be no rezoning. You are the registered owner of the land prior to the subdivision and you will be the registered owner of the land following the subdivision. You have not undertaken any subdivision activities or any business of land development in the past.

A copy of the proposed land division plans and cost estimates has been prepared by Surveying Company (SC). Real Estate Company (REC) will be engaged to sell the subdivided lots, as per the REC's selling proposal document, which includes the method of sale, marketing service and professional fee and charges of \ commission.

You plan to engage SC and these subdivision activities are expected to be completed in approximately one year. The subdivision activities will be funded by your own funds (i.e., no borrowings).

In relation to the subdivision of the land, you will be personally undertaking the general maintenance (especially watering system), grass slashing, cleaning, tidying up and presentation of the titles particularly the house and surrounds, liaise with Surveyor, real estate agent, fencing contractor and plumber for water connection.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 112-25

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 Part 3-1 and Part 3-3