Unlocking Value: Subdividing Your Family Home’s Land
Many retirees find themselves cash-poor but asset-rich. For those living on larger properties, subdividing and selling unused land can be a potential retirement strategy to generate funds for income-producing assets. While this approach may suit some circumstances, it’s crucial to understand the capital gains tax (CGT) implications and downsizer contribution limitations.
When you subdivide a block of land, each new block receives a separate title and is treated as a distinct asset for tax purposes. Selling a subdivided block triggers CGT.
Typically, selling a main residence is entirely exempt from CGT if it hasn’t been used for income-producing purposes, but this exemption may not apply to subdivided blocks.
The CGT main residence exemption requires that the capital gain relates to your “dwelling”, which includes your home and up to two hectares of adjacent land used primarily for private or domestic purposes. This two-hectare limit includes the land beneath your home. Consequently, if you subdivide and sell a block of vacant land on a new title, it’s no longer considered part of your dwelling and doesn’t qualify for the CGT main residence exemption.
Eligibility to contribute any sale proceeds to superannuation as a “downsizer contribution” requires the contribution to be equal to part or all of sale proceeds from the sale of a dwelling.
Before proceeding with any subdivision plans, it’s crucial to seek expert advice to ensure you’re making informed decisions that align with your retirement goals and comply with current tax regulations.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
