Determining the cost base and CGT implications
Enquiry:
My wife and I bought a property in Wollongong in November 2016.
We moved into the property and have treated this property as our main residence since the settlement in July 2017.
We have subdivided the block and title was issued for the rear block in July 2019.
The rear block is due to be sold in October 2019.
Can I ask, If the block was sold in October 2019, what would be the correct method to apportion the cost base of the rear block?
Also, are there any CGT exemptions or discounts available for us?
Explanation:
In relation to the cost base allocation, the tax law requires the apportionment to be made on a reasonable basis. There is no set method as long as the apportionment is reasonable.
As per TD 97/3, the apportionment can be achieved on an area basis if all the land is of similar market value or on a relative market value basis if this is not the case. You may use the formula in s110-30(3) to determine the cost base allocation for each lot. In broad terms, it is calculated by reference to the relative market value of each lot.
Refer to s112-30 and TD 97/3 on the apportionment rules.
The CGT discount should be available as the land has been held for more than 12 months. The main residence exemption cannot apply to the sale of vacant land only.