CGT Impact Of Shifting The Boundaries On Inherited Land

Q&A Tax

Question :

Mr. Smith is 75 years old. He owns two blocks of land:

Block A: 8,000 sqm

Block B: 16,000 sqm

Total land 24,000 sqm

Both blocks of land were originally acquired by Mr. Smith’s father in 1920s. Upon the death of Mr.
Smith’s father in the mid-1970s, both blocks of land were inherited by Mr Smith.

Block A is a vacant block of land. Block B has two houses on it. Mr. Smith lives in one house and Mr.
Smith’s son lives in the other house.

The blocks of land are not able to be subdivided. However, recently, the town planners are allowing the
boundaries to be shifted on the blocks of land.

In response to the new rules, Mr. Smith hopes to:

1. Shift the boundaries on the blocks of land so that Block A becomes approximately 18000 sqm. Block
B will have the remaining land of approximately 6000 sqm. Block B will have his son’s house on it.
2. Transfer Block B to his son.

Please advise on the CGT issues.

 

Answer :

As both blocks were acquired by Mr. Smith in the mid-1970s, they are both pre-CGT assets (prior to
20 September 1985), they should retain pre-CGT status.

Even though the land boundaries have been changed, the beneficial ownership in the blocks is still Mr.
Smith which remains unchanged. This means the pre-CGT status is maintained for both blocks after the
boundary shifts.

As such, the transfer of one block to Mr. Smith’s son should be exempt from CGT.

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