All Topics / Legal & Accounting / Capital gain tax on new unit sales

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  • Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    Hi Everyone,

    Quick question, so I understand that if I hold onto the IP for more than 1 year, 50% of the gain will be taxed only.

    My brother and I purchased an IP 4 years ago. In Sept 2013, we commence construction of a new unit, subdivided and subsequently sold the new unit in early 2014.

    Are we entitled to the 50% Capital gain tax offset?

    Thanks

    Regards
    ptn

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    prob not. many issues involved. GST?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of tanner892tanner892
    Participant
    @tanner892
    Join Date: 2013
    Post Count: 25

    prob not. many issues involved. GST?

    Yep watch out for this, subdivision can give rise to GST as its seen as a commercial transaction, and I can’t see how you would receive the 50% discount either.

    Walking to run
    Participant
    @alisdair-horgen
    Join Date: 2014
    Post Count: 68

    On this, in a similar scenario. If I got together with 9 friends and we borrowed 2 million and developed a site. If we could ever get the finance and ever develop somewhere, solely for the argument of CGT, would it matter if we waited a year after completion to reduce CGT? Or it’s all commercial because of subdividing?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    A development involves making something and selling it. properties in this case. Similar to a gadget maker making something to sell – trading stock and/or income tax. Capital gains tax applies to certain assets that are bought to hold longer term with the aim of producing an income from the property and the later sale being incidental.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of IrwinIrwin
    Participant
    @iwisata
    Join Date: 2015
    Post Count: 2

    Correct me if I am wrong but I think the CGT 50% discount will still be applicable until the building commencement assuming that you changed your ‘intention’ from gaining rental income to profit undertaking. Then from that point based on the market value, the whole profit will be considered as revenue and subject to income tax and GST

    Profile photo of PTSMikePTSMike
    Participant
    @ptsmike
    Join Date: 2015
    Post Count: 8

    In both of these instances if the intention was to buy , develop and sell then it is on revenue account. CGT wont apply. So if the property was held for 2 years wouldnt matter you wouldnt get the discount. Even a profit from an isolated transaction can be on revenue account. Refer myers case. Tread carefully

    PTSMike | Property Tax Solutions
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    Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    Hi All,

    Thank you for all the response.

    With regards to intention, we build those 2 units with the intention to live in.

    We sub-divided the land into 3 lots; 1 existing and 2 new units.
    1. We sold the existing unit. We should get the 50% discount CGT.
    2. My brother moved into one of the new unit in April 2014.
    3. Our family was supposed to move into the other new unit but after 6 months of schooling issues, we decided to sell the new unit instead. We sold the new unit in Dec 14. Not sure if we need to pay GST? Not sure if we get the 50% discount CGT?.

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