If you are considering subdividing your main residence and selling the new block, the profit on the sale of the subdivided block is subject to capital gains tax. In order to calculate the capital gain made on the sale of property, you will need to know the sale price and the cost base. There are several expenses that you can add to the cost base of your newly created property which will decrease the profit you make on the sale of the land, and therefore the capital gains tax you pay.
Expenses that you can add to the cost base of the new block are as follows:
– A portion of the original property cost
– Subdivision costs
– Construction costs (if you build on the new block)
– Council rates
– Water expenses
– Electricity expenses
– Interest on the property loan
– Repairs and maintenance
– Insurance expense
The above expenses are generally apportioned on a reasonable basis between the original dwelling and the new block, except for payments that are solely attributable to new property (for example, construction costs if you build a house on the new block).
It is essential that you have all the information necessary to calculate the correct cost base amount in order to avoid a larger capital gains tax bill.
Pro tip:
Although subdivision costs are generally apportioned across the two properties, the costs of connecting electricity and water to the new block can be solely attributed to this block.
Author: Tessa Jachmann
Email: Tessa@faj.com.au
