How Selling a Subdivided Backyard is Handled:
When you subdivide and sell part of your backyard, the tax rules that apply are similar whether it's from your home or a rental property. The key point is to figure out if you bought the property planning to subdivide and sell the backyard. If you've done something similar before, or if you work in construction or real estate, the tax office might see this sale as part of a business to make profit, and they'd tax it that way. However, it's possible to argue that the sale isn't a regular business activity. For example, in a past legal case, even though the person intended to make a profit, the sale wasn’t treated like a regular business because the land had sentimental value and was acquired through family. If you didn't plan to make a profit when you originally bought the land, you could argue that this is just selling off part of your property (not a business move) based on a past court decision. This is generally okay if you keep the development simple (just meeting city requirements and using an estate agent to handle the sale).
Tax Warning – Building on a Subdivided Backyard:
If you build a house on subdivided land before selling it, even using a professional builder, the tax office usually treats this as a business activity meant to make a profit. This applies even if it's your first time doing such a project. Things get more complicated if you rent out the new house before you sell it.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.