How to subdivide without falling into the tax trap


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With high property prices in many capital cities, it's becoming increasingly popular for people who are lucky enough to own a large block to subdivide it and either sell off the surplus land or even build another house on it and then sell.

Big profits can be made but first you need to be aware of the tax consequences.

Don't assume that the main-residence exemption from capital gains tax will eliminate your tax liability. It won't.

how to subdivide your property

To claim the exemption, you need to sell the bit of land that actually has your house on it.

If you subdivide, keep the house but sell the surplus land, that doesn't count as part of your main residence, so you can't apply the exemption.

Even if you can't claim the exemption, you might assume you can claim the 50% CGT discount, which in effect halves your taxable gain if you've owned the land for more than 12 months.

That's not necessarily the case.

If the tax office believes you have sold the surplus land with a view to making a profit and that the transaction has the character of a business operation or a commercial transaction, CGT won't apply but you'll be hit with an income tax bill on the entire profit (less costs).

Even a single transaction can be regarded as a business operation.

You might also have GST obligations. That's particularly the case if you decide to build a new house on the surplus land before selling it.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.
Helen Tran
September 13, 2020 10.29am


I have a question to ask about Capital Gain Tax.

We have a big block of land which will be divide into 2 small lots, we plan to build a new house on 1 lot than sell it and later on we will build another new house on remain lot for us to live. How much will we pay the CGT on this situation?