Advice on building second house on same block

Hi

I have a 1500sqm block in Perth. We live in a house on the property, it's our PPOR, no other investments.

I am building a house down the back for one of our children, and a shed in the middle to move my business into.

Current mortgage is principle and interest of 350k with about 320k in the offset.

Shed is being built and paid for with the funds from the business. Business is mine as sole director/employee.

Daughter's house is being built with funds from the offset. No loan will be taken out. Build cost is about $200k, site costs are about $50k. Council approval is almost finished for the entire project.

The new house has been positioned so it can be subdivided off in the future (probably to her).

She will be paying electricity/gas on a submeter basis, I'll be paying the rates for the entire block, rent will be something like $150 per week initially with small increases over time.

I was just going to pay for everything myself, not really considering the structural impacts of that and the potential income and what it may do in the future if we do subdivide and sell (even to her).

Any advice is appreciated on how to set things up properly so I get no nasty surprises, especially with tax or CGT, even the possibility of getting it into a SMSF or something. I hadn't really thought it through as an income generating asset.

If there is anyone in perth I would be happy to pay for a consult.

Thanks.

 

Good call on seeking advise, find a good professional pay for specific advise. Suggest there could be many different hurdles/costs if not tackled correctly.

 

Forget a SMSF transfer that isnt allowed.

There is a CGT issue to be addressed and, No. Its not exempt. The existing house element is treated as if it was the only exempt portion and the (new) land was never exempt. This occurs whether subdivision occurs now or later or even if it never happens. The portion used for the other purpose will mean you need a valuer to appraise what the apportionment of the original cost in to its two different elements. ie house & land + new land. Then the costbase for that new lot will have all the build added. Its not your main residence and wont meet the three month rule either. Only when you dispose of it will a CGT event occur and tax will be due.

The rent deductions will be impacted by the ATO views in this tax ruling
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The business use will also impact CGT but will open up some third element cost issues to consider. If the business is as sole trader / partner you will impact the main residence exemption on the house portion of title.

The daughters use seems to assist to avoid concerns its an isolated profit making intention and also subject to GST. by being a mere realisation with a partly private character. If you switch to selling on market that could change.

 

What's the zoning of the block are you able to subdivide now or is a rezoning pending? Banks don't like two properties on the one title and you limit the pool of buyers who would want to buy a block with two homes on it. Councils would normally only allow a small ancillary dwelling 80m2 if the block can't be subdivided, so interested in how you are getting building and planning approval.

 

Hi it's 1500sqm R25.

Ancillary and shed are both 121sqm each. That's the max limit of the codes, 110sqm+10%. Been back and forth with the council and it's in final stages now, should be getting presented at the next council meeting with a recommend from the planning people. I could subdivide now if I had to, nothing stopping that process. All services, driveway, drainage, etc is all set up for that. The rear lot with the house is actually setup for subdivision though, it was part of the council process, which I guess was easy considering the land size. There is now a line drawn on the plan where it is supposed to be.

I'm not doing this to invest or to sell to make money, as it's only our daughter who will live in the rear house, and then likely my partner's parents after that. So I am not to worried on the market side. I just got worried that even though this is all private, and I'm not looking to actually split the block off, the tax man would get involved.

 

Ok that's a lot to take in and my suspicion was correct that's it's not just a simple build a shed and house on the block. Are these same implications for the a granny flat? Because that's what it's really like.

Do you think this is something you could advise on?

 

Ancillary and Granny Flat are basically the same in WA and you can rent the Ancillary to anyone they don't need to be related. If you subdivided the lot and created the second lot you can claim all the interest and expenses and it would be an investment property which would provide you with much better ability to pay down the debt and your daughter could buy it down the track get all her stamp duty exemptions and any first homeowner grants. You won't ruin your CGT free status on your PPOR. It would be easier to get a loan to build the home and you could claim the interest and keep your cash in the offset and pull it out when you need it.