Another CGT question

Dear valuable forum gurus.
Situation: We just sold our PPOR (lived 14 years in) and I believe we will be exempt from the CGT.
We have an IP property that was rented for 5 years.
This year we redeveloped this property (so no income on it from January 2021) and built two side by side townhouses and subdivided the land.
We are moving into one new townhouse (A) end of this week to live in and will rent out another one (B).
We are planning to sell the townhouse A in which we will move in because we are planning to move interstate and buy there as soon as practical.
Question: How long should we live in this new developed townhouse A to minimise CGT? 3 months? 12 months? Or no rules here? e.g if we buy a house interstate in 6 months and sell new townhouse A - will we pay CGT?
Sorry for all these questions and thank you very much for long read. Tried to find the answer on ATO site but unsuccessful.
Cheers, and thanks a lot!
Nikki

 

Reading it again:
"118-140(1) If you *acquire an *ownership interest in a *dwelling that is to become your main residence and you still have your ownership interest in your existing main residence, both dwellings are treated as your main residence for the shorter of:

(a) 6 months ending when your ownership interest in your existing main residence ends; or

(b) the period between the acquisition of the new ownership interest and the time when the ownership interest referred to in paragraph (a) ends.

118-140(2) Subsection (1) only applies if:

(a) your existing main residence was your main residence for a continuous period of at least 3 months in the 12 months ending when your ownership interest in it ends; and

(b) your existing main residence was not used for the *purpose of producing assessable income in any part of that 12 month period when it was not your main residence."
Is it correct that I may start looking to buy a house interstate after I live in the townhouse A for 3 months and use 6 months rule to claim two houses as PPOR until I sell house A and moved interstate? Will I pay CGT after selling A?

 

both can't be exempt

 

Until you pass otherwise you will only be increasing the % of PPOR/non-PPOR.

 

So it was an IP, then you developed it, you are asking about CGT (which has no bearing on it) when you should have sorted out GST prior to the build !

 

It was an IP, we developed it and will move in to minimise taxes. Why we need to pay GST? We purchased the property as IP and rented it for 5 years. We will continue to rent the second townhouse and will sell another one after a couple of months. Is it good plan or may be stupid plan to optimise taxes? I am not an accountant, trying to read about taxation, rocket science to me.

 

You will be liable for GST if you sell the new building if it's less than 5 years old. See @Terry_w Tips

The latter.

Time to get one.

 

Prior to doing anything....
Why was this not part of your planning PRIOR to doing anything ?

 

The plan was to keep both townhouses, but plans were changed unfortunately.

 

given you just sold a prior property for which it sounds like you claimed the full main residence exemption it sounds like moving into either of these two new townhouses will have very minimal impact on the tax liability.

 

the sale of the new townhouse sounds like it will be subject to GST based on the limited facts provided in the thread.

the reasons for selling and the change will be extremely important to determine whether GST needs to be paid

 

unfortunately the six month overlap rule is for 6 months only. it doesnt mean you can have two main residences indefinitely because you had two for 6 months.

 

its important to remember that just because a new property is sold within 5 years doesnt mean it is always subject to GST. ive successfully applied for private rulings where it hasnt applied. sometimes things do happen or what is done is quite unique and you may be able to argue that GST doesnt apply

 

And the nature of the 5 year rule is expceptionally specific. Its easy to sell after 5 and still fail the test. Then the "first owner"could remain liable for GST. Meanwhile GST on the build expires in the 3-4 year period. The strategy of deferring a sale to "save" GST inst necessarily a saver especially where the margin scheme could also be used.

Yes the issue of "enterprise" needs tax advice as circumstances can vary.

CGT is less likely to be a consideration at all where the property is used as a element of an intended enterprise

 

Hi Mike, the plan is eventually to move interstate, so we want to live in new townhouse as in our PPOR until we buy a house interstate. After that we will start selling new townhouse. Would interstate relocation be valid reason?
And yes, newbie in this area, a lot of lessons learnt. This forum is the real treasure.

 

It might be a valid reason. It shows your plan is to sell in the short term rather than keep for rent.

 

Thank you very much Terry. And yes, agree with the statement I should seek professional advice regarding the strategy of property tax optimisation BEFORE redevelopment. It is always better to listen to professionals that DIY. As a professional telecommunication engineer I know it.
This forum is a real treasure to read and learn, but professional advice is professional advice.

 

The intentions when you acquire the land and what is done to the land will prevail over why you are selling in the context of "enterprise"
Seek personal property tax advice.

eg Fred Flintstone buys land intending to build a duplex. He plans to sell both and indicates this on the loan docs. He applies for council approvals, loans etc and contracts the build. On completion he seeks to sell both at once and plans to move to QLD. He lives at his parents home but would like to consider one as his home. He gets tax advice that the activity is a enterprise and TD 92/135 likely applies in his case so living there wont help. In this case it would be seemingly a enterprise and sale of BOTH is a taxable supply with no CGT concessions. The issue of him moving is irrelevant to the enterprise. The issue is one of a isolated profit mkaing activity which is taxed much like that of a business ie "ordinary income".

However lets say Fred chooses to build a duplex and has intentions to live in one and rent the other. He does that for two years then joins the ADF and is sent to Townsville for his new role after basic training. He chooses to sell both as part of his new life and relocation plans. Sale of the two may be a "mere realisation"of a CGT asset and there is no enterprise. No GST issues, Main residence exemption incl the 4 year backdating rule applies to his 50%. Fortunately Fred met with Paul@PFI who also documented the initial advice that supports his intention to live in one and keep the other longer term to rent. Paul did warn Fred about selling too soon and agrees that the ADF deploymnet is a suitable event that supports a mrere realisation rather than selling to take profits. How long is too soon ? there is no such measure. Ideally Fred should keep the property a "fair while" to support his CGT position. The ADF issue a mere trigger. So may marriage and reloaction, a different job. Fred may also be better positioned to sell HIS half rather than the investmnet half if that was being considered. This continues to demonstrate his desire to hold the asset to produce income and be a CGT asset.

 

Hi Paul, The intention when the land had been purchased was investment and the property (with investment loan against) was rented out for 5 years.
Last year we decided to redevelop the property, didn't use construction loan but financed the construction using equity of the main residence that just sold now.
The redevelopment intention was to keep one townhouse as investment property and to move in to another one and use it as new main residence until we buy a house interstate to relocate in.
After purchasing the interstate house main residence townhouse will be sold because of relocation. Do we still need to pay GST after selling?

 

Yes. Some tax will be payable. The question is which tax and how much