Conditions on subdivided land
If you subdivide a block of land, each resulting block is registered with a separate title. If you sell the new blocks, any profit is treated as a capital gain or income. Where the profit is treated as income, there are GST implications.
The profit you make is treated as ordinary income (not a capital gain) if both of the following apply:
- your intention or purpose in subdividing was to make a profit
- the profit was made in the course of carrying on a business, a business operation or commercial transaction.
This is true even if you aren't in business (for example, if it's a one-off transaction by an individual). For more information, see TR 92/3 Income tax: whether profits on isolated transactions are income.
Certain purchasers of potential residential land are required to withhold an amount of GST from the price of that land for payment to us.
Capital gains tax on subdivided land
When you subdivide a block of land for CGT purposes:
- the original land parcel is divided into 2 or more separate assets
- you make a capital gain or capital loss when you sell the subdivided blocks.
To work out your capital gain or capital loss, the date you acquired the subdivided blocks is the date you acquired the original parcel of land. The cost base of the original land is divided between the subdivided blocks on a reasonable basis.
When your home is affected
If you sell any land separately from your home, it is subject to CGT. Only land sold with the home that is your main residence can receive the main residence exemption.
Land is adjacent to your home if it is close to, near, adjoining or neighbouring it.
GST treatment of subdividing
You may have GST obligations and entitlements if you subdivide and sell land:
- with the intention of making a profit
- in the course of carrying on a business
- as a business or commercial transaction.
If you're unsure whether your subdivision falls into the above categories, you can request a private ruling to determine your tax position.
Even with a one-off transaction, you may still be required to register for GST because your transaction may have the characteristics of a business deal.
Once registered for GST, you will:
- need to include GST in the price of goods you sell, including land that you've subdivided
- be able to claim credits for the GST included in the price of most of your business purchases (subject to the normal GST rules)
- be able to report these transactions by completing an activity statement.
For more information see:
- Tax consequences on sales of small-scale land subdivisions
- Examples of tax consequences on sales of land including small-scale land subdivision
- Eligibility for main residence exemption.
If you subdivide a block of land, there may be tax implications such as capital gains tax (CGT) or GST.