Income tax: if a parcel of land acquired after 19 September 1985 is subdivided into lots ('blocks'), is a disposal of a block of the subdivided land treated by Part IIIA of the Income Tax Assessment Act 1936 as the disposal of part of an asset (the original land parcel) or the disposal of an asset in its own right (the subdivided block)?

The disposal of a subdivided block is treated as the disposal of an asset in its own right, and not as a disposal of part of an asset being the original land parcel.

We consider that the effect of registration of separate new titles under the subdivision is, for Part IIIA purposes, to divide the original land parcel into two or more assets (viz., the subdivided blocks). The subdivided blocks are then treated as separate assets under the capital gains provisions. They are taken to have been acquired by the owner of the original land parcel when that parcel of land was acquired.

We consider that the 'split asset' view is the better view because it recognises, firstly, that the land owner has assets after the subdivision which can be dealt with separately and, secondly, that title to the original land parcel, on subdivision, will often cease to exist. The original asset has been divided into two or more assets (the subdivided blocks).

If an original land parcel is divided into two or more blocks without any change in beneficial ownership, subsections 160ZH(12) and (13) provide that the relevant cost base (e.g., indexed cost base) of the original asset is, to such extent as is reasonable, included in the relevant cost bases of the subdivided blocks.

The consequences above should be contrasted with a situation where a person disposes of an interest in land. For example, a person may dispose of a 50% interest in land the person owns. 'Land' is defined in subsection 160K(1) to include a legal or equitable estate or interest in land. The disposal of the 50% interest in the land constitutes a disposal of part of the land to which sections 160R and section 160ZI apply.