Forums / Property Investing / Value Adding / [moved] Developing and CGT

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  • Profile photo of willwill
    Member
    @will
    Join Date: 2003
    Post Count: 9

    Hello all,

    Here is one i am not sure about, for example:

    Say you have a property purchased for 200K presently worth 400K (say 10 years ago)

    You then demolish the house and build 4 townhouses. Lets say each townhouse cost 150K total to build. You then sell 2 of the townhouses to cover construction costs raise capital whatever the reason for 300K. How is CGT tax calculated on the sale price of each townhouse? (Assuming 50% discount applies)

    Any attempt at answering this one is very much appreciated! [cap]

    Profile photo of maniyakmaniyak
    Member
    @maniyak
    Join Date: 2002
    Post Count: 10

    Not sure about a 4 townshouse arrangement, but when I sub-divided a block of land and sold off the new lot, CGT was based on the original purchase date. Sample numbers of how it worked for me.

    purchased 1/4/02
    sub-divided 1/10/02
    sold 1 lot 1/4/03

    CGT purchase date was 1/4/02 (ie more than 12 months). Base cost of land was the pro-rata on area less pro-rata purhase and developement expenses. eg

    Whole lot 1000m
    New lots 600m and 400m
    Sold the 400m lot which is 40% of original

    Purchase price $100,000
    Purchase costs $4000
    Development costs $10000
    Sales costs $5000

    Base cost of sold land = 40% of $100k less 40% of $4k and $10k and any sales costs.
    Base cost of 40,000 – 1600 – 4000 – 5000 = $29400

    Hope that helps (and correct) [wacko]

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,750

    Hi,

    Wouldn’t the creation of new titles amount to the disposal of an asset?

    Wow, the more I think about this, the more complicated it seems.

    I suspect that the ATO has a ruling out on this, and that going to your accountant prior to the subdivision would be smart.

    Let me know the answer!

    Cheers,

    Steve McKnight

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    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Steve

    You are right the ATO have several rulings over such action.

    The subdivision or Strata titling of a property does not triger GCT where the asset is still held by the original owner.

    Cheers Richard
    richard at fhog.com.au
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    Profile photo of willwill
    Member
    @will
    Join Date: 2003
    Post Count: 9

    Yes i see that no sale would not obvisously trigger CGT, however undertaking such an excercise with again as a example constructing 4 townhouses selling one to cover construction costs and holding the rest.

    The problem could arise as the original purchase price of the land bought 10 years was 100K (giving approx 25K base for 1 townhouse).

    Selling 1 townhouse for 300K with say a 150K construction cost keeping it simple would be CGT payable on 62.5K (50% of 125K)?? i’ll have to investigate further![cap]

    Profile photo of vianndravianndra
    Member
    @vianndra
    Join Date: 2003
    Post Count: 4

    You’re all assuming that the starting value carried over to the subdivided block is the same percentage as the land percentage on the original purchase. How would this work when there is a house on the initial block but you only sold the land on the subdivided block? Surely you couldn’t just say 50% of the initial costs belong to the block of land. What if you then sold the house but kept the land to build another house on? Then you would have a disproportionately low initial cost on the house and trigger a huge capital gain when it is sold. How can this work fairly? Has anyone had this experience of selling only part of the sub-division?
    Regards Vivian

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