2 lots 1 title CGT on demolishing?

Hi everyone,

I own an old house, 2 lots 1 title in Brisbane, want to demolish the house

demolishing the building would be a CGT event unless I decide to build on 1 lot

would it be more tax effective to demolish the house and sell the 2 lots or to build on one and sell the other one??

thanks to everyone

 

not enough info

 

Selling the land could (very likely) trigger GST. And its possible some (or even all) of the profit wont be a CGT sale - This could be costly if its not well managed. A CGT event only applies to CGT assets and the choice to subdivide and sell off the lots seems an enterprise which may limit the land being held as a CGT asset. The choice of building on just one lot also has some implications...maybe good or bad.

I would suggest personal tax advice to address the options and your individual situation. There are effective ways to manage and maximise the tax outcomes.

 

I would have thought that demolishing the old house would trigger CGT event..

the house is on 900sqm, 450 each lot, 1 title 2 lots, so all set up

any idea of costs involved in demolition...am thinking about 15 20k all up

 

Look at s43-40 itaa 1997. It states that you can claim a deduction for the undeducted balance of capital works that have been destroyed.

If you didnt receive any proceess in relation to the destruction then the demolition costs wouldnt increase the deduction that can be claimed for the undeducted capital works. If you did receive some proceeds then the costs incurred in demolishing the existing capital works can be used to offset against those proceess.

Check out ato id 2003/833 for examples of how it works.

If the demolition costs are not being taken into account under the capital works rules then they should be added to the cost base for cgt purposes if they enhance or preserve the value of the asset.

 

Demolition of a dwelling should trigger cgt event c1. A capital gain or loss wont arise under c1 if no capital proceeds are received however.

 

if bought for 650k and sold 1 lot for 500 and the other for 500k (eg 2 lots 2 titles) there would be no cgt as I understand if I built on the other block (as under 650k)..as I undertsand

 

No and yes. Maybe cgt. Maybe revenue. But will have tax to pay.

You will need to allocate the 650k across the two blocks giving you a cost base for each block less than 650k.

 

There are functional limits to s43-40. It is not an automatic right.
Effective 01 July 2019 it may also be limited by proposed law changes. Its yet to be determined.

 

Why do you think this is the case? What about the $350k 'profit'?

 

And the profit subject to tax may also be impacted by the GST on sale. Which may have been reduced if it was addressed in the sale contract. And the withholding on the sale of new residential premise (or land intended for new resi premsies) will catch the sale for review by not just the ATO but the buyers solicitor

 

folks, if I was to sell the 2 blocks of land would they both be subject to CGT?? eg selling each for 500k?

I would assume so, as the original structure is gone so no more ppor

 

couldn't say without knowing the facts.

 

Many issues could impact this. Sale of land is generally a taxable supply (GST). The margin scheme could be used or there may be no enterprise BUT it would be difficult to argue there was not an enterprise since you did more than just sell the land with the former home which would then have avoided all concerns about GST.

Generally I would always advise someone doing this to sell the house and land with a DA and approved plans to subdivide and allow the buyer to consider demo or use of the DA even if it means you adjust the price for their cost of clearing the site. Sale of a dwelling (based on YOUR use) would safeguard the main residence concerns and GST would not impact at all either.

Its one of the top 5 big mistakes people not seeking early tax advice can make and it can really affect outcomes