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Vacant land - corner Conquest Drive & Blossom Lane, Werribee, Melbourne

Subdividing property is like buying a whole cake for $30 and then cutting the cake into 8 equal slices and selling off each slice for $5. The sum of each individual slice is greater than the whole cake.

To ensure you maximise your profits from a subdivision and/or subsequent development, you will need to calculate the projected total cost base of the newly subdivided parcel of land, its estimated sale proceeds minus capital gains tax and selling costs to determine the profit. You will also need to estimate the value of the first and original parcel of land which is now smaller as a result of the subdivision. While land appreciates and buildings depreciate, you can subdivide land in most cases without significantly affecting the resale value of the existing building which subsequently resides on a smaller parcel of land after the subdivision.

Once the land is subdivided, you will be presented with new options an example of which is as follows:

Option 1: Sell subdivided land and use proceeds to substantially reduce mortgage.

Option 2: Develop and build new dwelling/s on newly subdivided land to either rent or sell

Option 3: Renovate house on original smaller land to either enhance rental rate or perceived value when selling

Option 4: Demolish original house to build new dwelling/s

There are many permutations within each option and the challenge is to find the best option. It should be noted the option with the highest profit may not necessarily be the best if the option requires a longer time frame and involve substantially more risk.

You need to take special note and be aware of the following issues in a subdivision:

1. Restrictions, covenants and overlays

The first point of contact should be to make enquiries with your local council to ascertain if there are restrictions and covenants such as minimum size of land and overlays imposed by councils to retain the character of the landscape. You need to be aware that not every property can be subdivided.

2. Setbacks

A setback is the area between a main road and the dwelling which cannot be built upon. Depending on the streetscape, different councils will have different restrictions and requirements on the area of setback. You also need to take into consideration as to whether existing trees are allowed by council to be removed to make way for development. In many cases, council may not permit trees which have exceeded a certain size or age to be removed.

3. Crossovers

Subdivision of land will invariably require you to provide street access and this may involve the construction of a new crossover / driveway. You need to be certain the new crossover do not interfere with existing drains, trees, electrical poles / cables or cause likely objection from neighbours.

4. Easements

An easement is an area set aside for the use and benefit of a third party. Most easements are created for purposes of access to sewerage, stormwater and power and are generally constructed along side or back boundaries of a piece of land. You are generally restricted from building over an easement although discussions with council and utilities may sometimes enable you to relocate existing easements to accommodate more effective development.

5. New title and approval

It should be noted you don’t require a new title to be issued in order to sell a subdivided piece of land or house. A contract can be conditional upon the new title being issued by a certain date.

Other related posts:

• Subdivision of land - Documents you need
• Subdivision of land – The Approval Process
• Subdivision of land – Calculating Capital Gains Tax

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This guide sets out the documents required for submitting a subdivision of land in the state of Victoria persuant to the Subdivision Act 1988.

A Subdivision Act plan is identified by the ‘PS’ prefix and in the plan number located at the top right of the plan.

Documents you need:

1. Plan of subdivision – This plan must be prepared on heavyweight paper and signed by a registered land surveyor and certified by the local council.
2. A transparency for each sheet of the Plan – This is a requirement of local council and the Plan or transparencies which are creased or damaged will not be accepted by the council.
3. Land surveyor’s report – This document is mandatory for all subdivision plans including non-survey plans.
4. Abstract of field records – This document must be provided if the Plan is based on a survey. If you do not have this document, you will need to supply a reference to its location in Land Victoria.
5. Application (Form 10) – The application can be purchased from Land Victoria and should be typed or legibly written in ink. The use of self-correcting typewriter ribbon or correction fluid is not permitted. The back of the form must not be used and any order to register or consent of mortgagee should be endorsed on the front of the application or on a separate A4 size paper.
6. Certificate of title – Not a photocopy, which may be:

a) in your possession

b) already lodged at Land Victoria in a current dealing. In this case if another party has produced the certificate of title they must endorse and sign as ‘order to register’ at the bottom of the PC form, or

c) held by a financial institution, solicitor or other party

who will endorse an ‘order to register and issuing instructions’ at the bottom of the PC form and make the certificate of title available at Land Victoria to enable you to lodge your plan. In most cases, the party making the certificate available will charge a fee.

You must ensure the certificate of title has been made available BEFORE attempting to lodge the Plan of subdivision.

Other related posts:

• Subdivision of land – Calculating Capital Gains Tax
• Subdivision of land - The Approval Process
• Subdivision of land – Top Strategies for Success

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New land release off Exford Road, Melton South

Your home is usually exempt from capital gains tax (CGT) if you sell it due to the Principal Place of Residence (PPOR) exemption. However, if you subdivide the land upon which your home is built and sell off the vacant land separately from your home, this transaction will not qualify for the PPOR exemption.

Therefore, if you own a parcel of land and decide to subdivide it into 2 or more distinct parcels, you may be liable for CGT when you sell off the subdivided parcels. However, the process of subdividing the land will not result in any CGT liability as long as you continue to own the subdivided parcels. You will need to divide the acquisition and subdivision costs of the land across the subdivided parcels on a reasonable basis.

The example below illustrates the calculation of CGT for a subdivided piece of land:

Ivan bought a house on a 950 sqm block of land in December 2007 for $280,000 whereby the value of the house and land was $60,000 and $220,000 respectively. Ivan has lived in the house with his wife as his PPOR since the purchase and incurred $13,000 in stamp duty, legal fees and other costs.

In January 2009, Ivan’s wife felt the house was too big for the both of them and decided to subdivide the land into 2 separate and distinct parcels. Ivan agreed with his wife and proceeded to discuss with the local council and incurred the following costs for subdivision:

• Land surveyor’s fees, legal, application fees                            $15,000
• Fees and charges for utilities – water, electricity etc               $5,000

Ivan sold the rear parcel of land in December 2009 for $150,000 and incurred legal fees of $3,000 on the sale.

Since the rear parcel of land was separate from his PPOR, Ivan is not exempt from the PPOR status and proceeded to value his properties as follows with the help of a local valuer who advised the front and rear parcels of land were 60% and 40% of the original cost since the rear parcel was slightly smaller. Therefore, Ivan apportioned the original cost of the land of $220,000 as follows:

• Front parcel =  $220,000 x 60% = $132,000
• Rear parcel = $220,000 x 40% = $88,000

Ivan’s calculation of his liability for CGT for the sale of the rear parcel of land to be as follows:

The CGT on the sale of the rear parcel of land is therefore: Sales proceed less Total Cost Base = Capital Gain

150,000 – 107,200 = 42,800

Since Ivan has owned the rear parcel of land for more than 12 months, he can reduce his capital gain of $42,800 by 50%, after deducting any capital losses which he may have incurred for other assets.

Hence, only a capital gain of $21,400 is subject to the applicable rate of CGT for this transaction.

If Ivan sells his home on the front parcel of land, then he is eligible to claim the full PPOR exemption if he has used it as his main residence during the period which he owned the property. *

* Ivan may be eligible for partial / full exemption if he rented the house on the front parcel under the Australian Taxation Office’s  6-year rule for CGT.

Other related posts:

• Subdivision of land - The Approval Process
• Subdivision of land - Documents you need

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Vacant land - corner Conquest Drive & Blossom Lane, Werribee, Melbourne

The process of subdividing land requires the approval of both the local Council and relevant utilities such as the water authority. I have chosen the Melton Shire Council as an example to illustrate the application process.

The first point of contact is the Melton Council’s Planning and Development unit. Every subdivision that is approved by Council will have restrictions attached which vary according to each individual site. Whilst it is possible to subdivide land prior to obtaining approval to develop the land, most local Councils prefer approval to be obtained for development before applying for the subdivision.

Especially for residential subdivision, subdivision will generally only be approved if a planning permit has been issued for a multi dwelling development. This is because Councils want to ensure first and foremost that an appropriate development can be accommodated on the smaller lots after subdivision.

A licensed Land Surveyor is generally required to prepare plans for subdivision and other information required for a subdivision planning application and for the certification process under the Subdivision Act 1988.

The subdivision process occurs in 4 main stages and must be undertaken in this order:

1. A planning permit is required for subdivision under the provisions of the Council;
2. Certification of the plan of subdivision, which approves the subdivision under the Subdivision Act 1988;
3. Obtaining a Statement of Compliance, which is the final approval stating that all requirements have been met; and,
4. Lodgment of the documents at Land Victoria. This allows new titles to be issued for each lot created under the subdivision.

Stage 1 – Planning Permit

An application for a planning permit must be made with the Council’s Planning and Development unit for the consideration of the subdivision. Details of the planning permit application process can be found in the ‘How to complete planning permit application form’ Information Guide. The processing of an application to subdivide will sometimes include the referral of the application to external authorities such as utility companies (water, gas and electricity) for their consideration. These authorities often require conditions to be placed on any planning permit issued.

Stage 2 – Certification

Once the planning permit has been issued by council, the application for certification can be considered.
An application for certification must include:

• An application form;
• The applicable application fee;
• Twelve (12) copies of the plan of subdivision (A4 size) and
• Two (2) A3 heavyweight copies of the plan of subdivision.

The plan of subdivision must be prepared by a licensed Land Surveyor. An application for certification must be referred to the relevant authorities (e.g. water, gas, electricity, roads etc.) to ensure that the subdivision is appropriate. Once
all authorities have provided their consent to certify the plans, the plan of subdivision can be certified by Council.

Stage 3 – Statement of Compliance

A Statement of Compliance will be issued when the Land Surveyor has provided relevant documents and that all planning permit conditions have been complied with, all authorities have provided their consent that all their requirements have been satisfied.

Stage 4 – Lodgement

Once the Certified Plan of Subdivision and the Statement of Compliance have been issued to the licensed Land Surveyor, the plan can be lodged with Land Victoria enabling the issue of new certificates of title.

Public open space requirements

To ensure there are sufficient public open spaces for residents of the local community, subdividers may be required to contribute funds to assist in the purchase of land for public open spaces and the improvement of and ongoing maintenance of facilities in parks, ovals and other public open spaces within the municipality. Alternatively a portion of the subject land can be set aside to be used for such purposes. A subdivider is generally required to contribute to public open space if the land will be subdivided into more than two lots, or into two lots where either can be further subdivided at a later stage.

Open space contributions may vary between the types of subdivisions being carried out and the number of lots to be created, though can generally be up to 5% of the land value/size. Higher percentages may apply in specific areas of the
municipality.

Works

Depending upon the subdivision, work, such as vehicular crossings, road, drainage and general services provisions may be required to be constructed prior to the issue of a Statement of Compliance.

Fees

Throughout the subdivision process there are a number of fees required. Fees include, but are not limited to:

• Planning Permit Application fee;
• Certification Application fee;
• Open space contributions;
• Service authority fees and / or costs;
• Land Victoria fees for lodgment of Certified Plans;
• Works supervision fees;
• Maintenance of works bonds; and,
• Professional fees for relevant parties (e.g. licensed Land Surveyor).

Fees and costs generally depend upon the type and size of the subdivision.

Other related posts:

• Subdivision of land – Calculating Capital Gains Tax
• Subdivision of land - Documents you need
• Subdivision of land – Top Strategies for Success

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