CGT Tax on second dwelling

The subdivision of land which was purchased prior to 20 September 1985, even if the subdivision occurs on or after 20 September 1985, will not change the pre-CGT status of the land, which is confirmed in Taxation Determination TD 7. That is, the subdivided land will maintain it’s pre-CGT status, due to the fact that no CGT event has happened and, therefore, no CGT liabilities will arise. This will be so, provided that the cost of the subdivision does not exceed the capital improvement threshold under ss.108-70(2) and (3) ITAA 1997 and also 5% of the proceeds of any CGT event that happens in relation to the property. For example, if a new dwelling is constructed after subdivision, and the subdivided land and that dwelling are sold, if these conditions are met, then the pre-CGT status remains with the land, but the new building is treated as a separate asset, which will be subject to CGT on its disposal.

Pursuant to s.102-20 ITAA 1997, however, CGT liabilities may arise in respect of the subdivision of land which was purchased on or after 20 September 1985, but only if a CGT event happens. The mere subdivision of the family home, the obtaining of two separate titles or the activity of building on the new block does not trigger any CGT event. The subsequent disposal of either or both properties, however, will be a CGT event and, unless pre-CGT status exists, then the only exemption from CGT which may be claimed in these circumstances is in respect of a main residence under s.118-110 ITAA 1997.