Property Subdivision Projects - The Tax Implications You Need to Know

Worldwide Advisory
6 days ago
3 min read

Property subdivision can be a highly rewarding strategy for building wealth, but with opportunity comes complexity—particularly when it comes to tax. If you're considering subdividing land, selling lots, or developing dwellings in Australia, understanding the tax implications is crucial to avoid unexpected liabilities and optimise your return.

Whether you’re an Aussie expat holding property from overseas or an offshore business investing in Australian land, this guide walks you through the key tax considerations and strategic advise that can make or break your project.

🧾 Capital Gains Tax (CGT): When and How It Applies

If you subdivide and sell a portion of your property, CGT is likely to apply. Here’s what you need to know:

🔹 CGT Basics:

If you’re not in the business of property development, the gain is generally treated as a capital gain.

The cost base of the land is apportioned between the original lot and the new lot.

Discounts may apply if the property has been held for more than 12 months (but expats beware—you may not qualify if you're a non-resident at the time of sale).

🔍 For Aussie Expats:

Selling subdivided property while living overseas can trigger non-resident CGT rules, meaning no 50% CGT discount and potentially higher tax rates.

If you plan to return to Australia, consider timing the sale to align with your return for better tax treatment.

🏗️ GST: Are You Running an Enterprise?

GST often catches subdividers off guard. If you’re seen as conducting an enterprise (e.g. building and selling multiple lots), GST may apply to the sale of land or property.

🔹 When GST Applies:

You register for GST because you intend to make more than $75,000 from the project.

You are developing with the intent to sell, even if it’s a one-off project.

If GST applies, 1/11th of the sale price is GST, and you may need to use the margin scheme to reduce liability.

🔍 For Offshore Investors:

Foreign entities must consider FIRB approval and may face withholding tax at settlement if GST obligations aren't managed.

Permanent Establishment (PE) risks may arise if your activities are seen as a business presence in Australia.

🧱 Holding Structure Matters: Individual, Trust, or Company?

Choosing the right structure for your subdivision project can affect your exposure to CGT, GST, income tax, and even land tax surcharges for foreign owners.

🔍 For Aussie Expats:

Holding property in a trust or company can offer asset protection and tax deferral options—but comes with its own rules for distributions and compliance.

Beware of main residence exemptions—non-residents can no longer claim these exemptions on capital gains related to Australian homes.

🔍 For Offshore Businesses:

Structuring via a branch vs Australian entity determines your compliance obligations, exposure to GST, and ability to claim input tax credits.

Withholding tax and transfer pricing rules may apply to any cross-border payments related to the project.

✅ Year-End Tips and Tax Planning Strategies

Use the Margin Scheme if eligible to reduce GST on sale.

Consider small business CGT concessions—especially if you’re retiring or restructuring.

Document whether you're conducting a business vs a capital transaction—this distinction has a big tax impact.

Seek advise early to ensure you don’t accidentally trigger enterprise status or PE exposure.

📞 Expert Advise Before You Subdivide

At Worldwide Advisory, we guide property owners and international investors through the structuring, tax planning, and compliance aspects of subdivision projects. Our expertise ensures you avoid costly missteps and stay on the right side of the ATO—especially if you're managing the project from overseas.

Whether you're: