My father subdivided a property he's owned since the '60s, does he have to pay CGT?

Hi Margaret

My father has owned his 150 acre property since the '60s. He subdivided the land into three 50 acre blocks in the '90s, but he still owned all three blocks. He lives on one block and is intending to pass a vacant block into my name so I can build my home on it. All blocks are used for a farming business, however he has no taxable income. He is registered for GST.

There is no way to avoid the capital gains tax (CGT) when he places it in my name is there? 

Do you know roughly how much he will have to pay? The CGT calculators don't make sense to me. Even if I do not pay for the block, it is worth about $800,000. The three blocks were purchased for $60,000 in the 60s so the one would have been $20,000.

Many thanks,

Alan from WA

Margaret's answer on the next page. Please click below.

Hi Alan,

As you father owned the block in the pre CGT days, this block is still a pre-CGT asset. Subdividing the one pre-CGT asset into three does not changed the pre-CGT status and subdividing does not result in capital gain or capital loss. 

Although your father will make a capital gain when he sells (or passes title of) the block to you, the date he acquired the block is considered to be the date that he acquired the original parcel of land, and the cost base of the original land is divided between the subdivided blocks on a reasonable basis. Therefore there is not CGT for your father to pay at all.

More importantly for you is considering how you will receive this block of land, and in what entity.  If you plan to live there then it may become your principal place of residence, and later if you sell there may be CGT consequences from the date you acquired the land in your name. This is because any part of the land over five acres attracts capital gains tax and cannot use the principal place of residence exemption. 

If you are going to conduct a farm then it could be considered business real property, or the part where the farm is conducted could be. It’s worth considering potentially using a self-managed superannuation structure, as business real property can be transferred into super even if it has initially been given to you.

In any event, my advice is for you to seek quality accounting advice before the transfer takes place. This will allow you to ensure that the right structures are in place from the outset.

Kind regards

Margaret

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