Does the subdivision of land create a capital gains event?

Many suburban homeowners often consider the option of subdividing their Block and undertaking property development. We are seeing lots of enquiries from property holders looking at undertaking a small development somewhere in Bentleigh to Brighton. This trend is continuing despite covid and the economy going through unchartered times

Scott Cam and the show” the Block “enthuses home onwners and rental property owners evaluate their options. Many have started to dable as a result of the program the Block

The tax implications of subdivision

We are often asked does the subdivision create a capital gains tax liability!

The subdivision will create two separate titles but at this stage, unless they are sold no cgt liability arises. This doesn’t mean tax wont arise. Your tax liability will happen when you now sell the subdivided property.

The subdivision effectively splits the land cost into two. Therefore depending upon what the land has been used before the split, will be determined what cost base calculation should be adopted moving forward.

Many small developments arise due to the decision to knock over the family home or existing rental property. Depending upon your circumstances and your intention with the property will determine how to recognise the cost base for tax purposes

Those undertaking a development may also have a mixture of both capital gains tax and general income tax. This is as a result as the nature of the assets has now changed

Good news is that the costs of subdivision may also be included in the calculation for the cost base

Plan so you get your tax exposure right!

Having a plan before undertaking any small development helps you clarify your tax position . Such as how the Taxation Office may treat you for tax .Whether one house of the development retains its “Principal Residence Exemption” (PPR) .And if you will be considered a taxpayer merely realising an asset or you are now considered a property development?

Property development is rewarding but seek advice to get it right!

Please seek professional advice as getting it wrong will have tax complications. Geoff specialises in helping small developers and builders in working through the the tax for property development . Contact us if you would like to discuss your project.

We also recommend talking to local real estate agents that understand the market such as Angelos Stefanis from Biggin Scott Elsternwick or Graeme Callen at Gary Peer Carnegie that uderstand these markets.

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