When you subdivide a block of land, each block falls under a separate title and you may be subject to capital gains tax (CGT) when you sell the subdivided blocks.

It’s important to consider your options before subdividing, and to speak to professionals like LDB Group about the tax implications.

Here are 3 things you need to know about subdividing your lot from a tax and accounting perspective.

1) Your profit may be considered a capital gain or ordinary income

The profit from selling subdivided land may be classed as a capital gain or ordinary income, depending on the situation. Usually, it’s treated as a capital gain and is subject to CGT.

The date you acquired the original parcel of land is the same date applied to the subdivided blocks.

The cost base of the original land is divided between the subdivided blocks on a “reasonable basis” (i.e. apportioned in a fair way).

If the original land was purchased before September 20, 1985, or if you’re eligible for the main residence exemption, then CGT may not apply.

According to the Australian Taxation Office (ATO), profit from the sale of subdivided land may be considered ordinary income if:

• Your intention in entering into the transaction was to make a profit, and

• You entered into the transaction, and the profit was made, in the course of carrying on a business or carrying out a business operation or commercial transaction.

2) You don’t need to be in business for the profit to be ordinary income

According to the ATO, if there is a “profit motive” and the sale has “the character of a business operation or commercial transaction”, it’s considered ordinary income.

This applies even for a one-off transaction, such as a subdivision by a non-business taxpayer or a transaction by a business taxpayer that is outside the ordinary course of their business.

3) There may be GST obligations

You may have to register for GST if the profit is considered ordinary income.

If so, you’ll have to include GST in the sale price of the subdivided blocks, but you can also claim GST credits associated with your business purchases.

We can help

LDB Group offers professional tax advice about all property-related matters, including the taxation implications of subdividing your lot.

Our property experts can also assist with providing specialist advice in assessing and analysing the viability of a subdivision, project management, and the eventual marketing and sale.

To find out more, please call us on (03) 9875 2900 or fill in the form below.