Hello all.
I'm new around here and hope you could help me.
I have a family home i purchased in 1994 that i wish to subdivide and develop. I wish to live in one and sell off the other. Now i know I'm up for CGT. Am i elligable for a 50% reduction of the CTG as i have owned the property for more than 12 months? I have had advice that im not but on the ATO web site, they have an example that you can.
Also the web site says that i can also get a 50% reduction if i do not use the indexing method to work the CTG out as the property was purchased before 1999.Iv also been told that i will have to pay GST by one person and another laughed and told me that you do not pay GST on the sale of a residential property. Is this true?
Will i be able to off set the CGT by claiming the building of the house that i put on the block as i am value adding to the block?
I am getting a little frustrated that i cant get a straight answer. I will ring the ATO Monday but id like to hear what you may have to say.
Any comments would be appreciated.
Hi Ambers,
This is a complicated area! I would suggest seeking professional advice from your accountant or finding one who specialises in this area.
From my own private research I have discovered that yes, the sale of residential properties are input taxed (not subject to GST), however the sale of a *new* residential property is a taxable supply (a sale attracting GST). The ATO website has lots of helpful information, however you really have to dig to find it.
As for CGT, now that's a tricky one.
Yes, you would add the cost of construction of the dwelling to your cost base of the asset which would also include the "cost" of the land. This value can be determined by apportioning the cost of the total block between the new lot and your home.
The question is, does the 12 months (for discounting) start from the completion of construction when the property is ready for it's intended use?
If we were just selling the subdivided land on it's own, the date of acquisition for the new block is considered to be the date you first purchased the whole lot, but what about when you've put a house on it?
Has anyone come across this before?And yes you are right. You have a choice between using the indexation method or 50% 12 month discounting method. The choice will require some number crunching!
And I hope you have some luck with the ATO tomorrow.
Hello Melhart,
Thank you for your comments. They have helped me along a bit.
Another question would be, the GST component would be on the profit component of the sale. Is this correct?
I think at this stage it may be better for me to sell of the plan so i don't have the holding costs.
I would have thought that there would be more written about this type of thing as so many people are doing it.
Have not been able to get through to the ATO as yet.
I think i will have to keep looking for a good CPA.
Thank you again.
Have a good day.
Hey Ambers,
Well, as your original purchase was for residential only, it's likely it was an input-taxed purchase – which means no GST.
However if you sell a portion with a new dwelling on it, it converts it to a taxable supply (the sale transaction only) – GST applicable. So your sale price would include GST. i.e. if you sold it for $550,000, then $50,000 would be the GST component sent off to the ATO and you would have $500,000 cash left to include in your CGT calcs. Not very pretty, is it?
Selling it with plans sounds good. As you said, no holding costs and it would remain as an input-taxed transaction therefore no GST implications for you on the sale.
But then again, as Steve says: It depends. How much value-adding can you achieve by putting a dwelling on the block? How quickly would it take to sell the vacant block?Don't forget that there's some great CA's out there too (not just CPA's).
Good luck!
Thanks Melhart,
Yes i think off the plan is going to be the way to go. Im not after a huge profit just trying to update the old house to accommodate the kids. But the ATO is making that very difficult without inflicting more debt on my part. GST and CGT are killing me.
The block would not take long to sell as it is a very desirable location.
But as you say i should be able to remove the GST component by selling off the plan and i hope i can minimise the CGT by 50% and hopefully that will see us break even more or less.
Is that how you see it?
Sorry about the CPA thing. Yes a CA would do just as well or anyone that could give me firm figures, so i know what to expect.
Best regards
This is how I think it works.
You now have one block. You split it into 2. This should be CGT exempt if it was your main residence. The block remaining your main residence will be CGT fee. The new block will attract CGT with the cost base being the value of the land at sub-division. You then build and sell – with the 12 month discount on CGT being worked out based on the original purchase date of the land.
You will have to pay GST too based on 10% of the sale price, but don't forget you can claim a credit for the GST component on all the materials used – which takes away a bit of the pain.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terryw,
Thanks for the explanation.
I rang the ATO but really didnt get much out of them other than read pages and chapters out of the book. Which is ok at least i know the pages relevant to me.
Now im going to have to ring them again for information on the GST side of things. He did seem to think i would not have to pay GST as im not a builder. fingers crossed but i think i will.
btw have a look at the pdf files on http://www.bantacs.com.au. there is a lot of info there on this sort of thing.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terryw,
It appears that we may be able to meet the requirements to reduce the GST side off things on a quick read of the information on the site. As we are not going to make a profit and our intention is not to go into business. That the property is currently our PPR and our only reason to do the subdivision is to be able to accommodate the family in a building that does not require repair.
So fingers crossed.
Thanks again all. I will read through it more carefully. I will let you know what happens once i get conformation from a professional.
You’ll also find a lot of great information at http://www.investorone.com.au
Adrian and Amber Zenere
http://www.RealEstateDevelopmentClub.comThank you very much Adrian And Amber for the site. It has been a very steep learning curve since undertaking this project and i have learnt a lot in such a short time. It took a little while to get my head around some of the taxation stuff, but i am there now. i think!
All the number crunching should be done by the end of the week. Which i am looking forward to. From there all systems are go.
What about going the other way? If using the above example, the PPOR was sold off (you would think appropriate exemptions would apply), withthe subdivided land being retained for construction of a new PPOR. When this second property is sold, what would the tax implications be, if any given it will have been a PPOR for a period of time? Just a thought from left field.
Cheers
Mick
Hi Mick,
This is a very grey area. As i understand it with out actually living in on the property for some time you can not claim the house/land that you build as the PPOR and retain the other. So you can not pick which one is your PPOR without living in it. For example i cant say i choose house one as my PPOR and sell it and then live in house 2 even though i have lived on the block before subdivision for 16 years without attracting CGT. this applies to 2 new residences being built. Now if i did not have to bulldoze the original house then i could claim it as my PPOR sell it and build the new house.
The rules in this case are not fair but thats life. the numbers still work either way but it would be nice to minimise this type of thing.
As far as the gst side, my new found accountant is getting me a type of ruling or clarification from the ATO so we shall wait and see what that brings. lol
Thanks for the input
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