Subdivision 10 year rule

Question from Nicole updated on 24th September 2014:

I have a property with two units on one title. For some reason the original developer chose to have the two units on the one title but this property can be subdivided into two freehold titles with almost no physical work required. I bought the property as a rental and I've had it for seven years. I plan to subdivide it this year and to sell both ten years from the original purchase. Would the profit be taxable?

Our expert Mark Withers responded:

Section CB12 taxes gains derived from the development or division of land where the work is more than minor and where the work was begun within 10 years of acquisition. The section contains a number of exemptions that include the division of a taxpayer’s personal residence, a division done to derive investment income, to enable the taxpayer to live on the land or to enable the taxpayer to undertake business from the land. The question of whether work is more than minor has been the subject of many court cases, the bar is low but there have been cases suggesting that the division of one lot into two is generally minor work. It all depends on individual circumstances. Given you have held the property for seven years already it may be prudent to hold off starting the subdivision until the 10 year hold threshold has been reached. You would also need to check that you were not associated to a dealer, developer or builder when the property was acquired.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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