Remember the tax office

If you subdivide, developing in itself doesn’t attract a tax because technically you haven’t sold anything. You only need to worry about tax after you start selling off or renting out the new lots.

Perhaps the sweetest tax perk when it comes to subdividing is the main residence exemption, which disqualifies the property you’re living in from attracting capital gains tax at the point of sale. Mark Chapman, from H&R Block, says that potentially if you lived in each of your new developments you could sell all the new blocks, one by one, free of capital gains tax. “Your current house is covered by the main residence exemption so that’s CGT free when you sell, and if you build a house on the other block and move into it, then that becomes your main residence,” he says.

“There’s no time limit to qualify the main residence; it’s all about physically making it your main residence. It has to be your address on the electoral register, it’s on your driver’s licence, you get your post sent there – you’ve actually lived there. You can’t sell each property at the same time – you still have to move from one to the other – but ultimately you can sell both your existing property and your new development CGT free.”

If you rent out your new development or move into it and rent out your existing property, this will affect your income tax. You also mustn’t forget to get your property evaluated at the time of subdivision. Chapman says this is important for establishing the correct capital gain on the properties you eventually sell.

“If you are subdividing your property, it’s worthwhile getting an evaluation done on the two blocks at the time that you do it, because further down the line when you actually come to sell you will need to apportion costs between the two blocks,” he says.

“You might think it’s a straightforward 50-50 but one block might be worth more than the other, so it’s worth getting someone in to do an evaluation to ascertain what the relative split is between the two blocks.”