I am looking at putting two town-houses at the rear of my PPOR and subdividing into 3 lots. I hope to keep all properties after the development, but think the shortfall between income and expenses on the rear properties may force me to sell one of the new developments.
If I sell one of the properties, I should be able to avoid GST on the sale as I am not in the business of selling properties. However, I will have to pay CGT on the sale.When working out the cost base for CGT calculations of the property I will sell, I have been advised that I should deduct from the original cost of the property a reasonable estimate of the then value of the house and apportion the remainder of the purchase price between the 3 lots proportional to lot area.
Apart from the development costs again reasonably proportioned, are there any other costs that I may have incurred to date that I can put towards the cost base of the lot to be sold. Can a portion of the rates paid up until the subdivision takes place be included in the cost base? Rates are based on GRV of the property, so presumably I have paid higher rates than otherwise due to the extra land attributable to the lot being sold. Anything else that I can add in?
TIA.
Are you sure you can avoid GST? The land and house will be new.
have a look at the PDF booklets at http://www.bantacs.com.au there is one called something like "how not to be a developer."
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Fantastic site – Thanks Terry.
Thanks Terry. Actually you pointed me to that website in answer to another question of mine some months back. As far as I can tell, I should not be classified as a developer. I bought the property to be my home about 4 years ago and only recently decided to develop the rear. My hope is to not sell either of the back 2 properties but just rent out (I will still live in the existing house up front which will remain my PPOR). But as I have very little income other that some share dividends and fund distributions, I don’t think I will be able to service the full loan needed to build the 2 units. Hence my possible need to sell one.
I’ve already run this by an accountant that specialises in property and he assured me that I would not be classified as a developer. Unfortunately I neglected to ask him about previously paid rates etc. when it comes to CGT cost base and would have to book another consultation with him just to address that issue.
When I say I intend to develop the rear, I mean I will be getting a builder to do everything from start to finish with little involvement from me, other than approving the design.
Not sure if anyone answered your question about the previously paid rates, but I would say they would only become deductible (a portion anyway) when you commence the development.
Any rates paid prior would be 100% related to you PPOR and thus for private and domestic use = non-deductible and would not form part of the cost base of the new units.
Good luck with the development!
Grow SMSF | Grow SMSF
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