Subdividing a block of land will leave you with each resulting block registered with a separate title. The original land gets divided into either two or more assets separately, so the capital gains tax or (CGT) purposes can be easily dealt with.
The profit earned by selling the subdivided land could be the capital gain or else ordinary income, based on the circumstances. In any case, you will have to consult the subdivision professionals from the best surveying company in Perth.
The Conditions On Subdivided Land
By subdividing a land block and seeking the new block, the generated profit is normally regarded as the capital gain that is subjected to CGT. However, any incurred profit is regarded as ordinary income, and not capital gain. It holds true only when both these conditions apply –
- The intention of subdividing purpose is profit-making.
- The profit generated is to carry on a business, a commercial transaction or else a business operation.
The instance is true even when you are not in the business, for instance, if it is a one-off transaction done by an individual.
Capital Gains Tax On Subdivided Lands
Subdividing a block of land for CGT purposes bear two consequences –
- The original parcel of land gets divided into two or more assets separately.
- The capital gain or capital loss is incurred only when the subdivided block is sold.
The date when the subdivided block had been acquired is the date acquired of the original land parcel – this is the determinant factor for working out capital gains or a capital loss. The original land’s cost base is divided between blocks on reasonable grounds.
When The Home Is Affected
Selling any land separately from home subjects it to CGT. Just the land sold with your main residence home can only receive an exemption from the main residence. If the home is closer to, near or else adjoins or neighbours the land, then the land is adjacent to it.
GST Treatment of Subdividing Process
After land subdivision and sale, you are likely to have GST obligations and entitlements as in –
- With profit-making intention
- Carrying on a business
- As a commercial or business transaction
Maybe, you are not sure whether your subdivision is falling into the above-discussed categories, then take help from subdivision consultants as a private ruling for determining your tax position. You might still need to register for GST even with the one-off transaction since your transaction is likely to contain the business deal characteristics.
After registering from GST, you will have to –
- Include GST in the goods price you are selling, along with the land that is subdivided
- Claim credits for the GST as included in the business purchase price that is subjected to the normal GST rules.
- Report these transactions by getting done with an activity statement.
So, here we end. By now it should be clear, that after subdividing a land, each subdivided block gains its own identity and title. Right from the date when the subdivision is finalized and a new plot is established with a separate identity, you are liable to pay tax on the newly done subdivided plot.
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