Apportion the subdivision costs

Hi PC experts,

I bought an old house with a big block of land. After living in the house for couple of months, decided to subdivide the block and build a new PPOR plus an IP for renting out.
Just wondering how will I apportion the costs. Construction costs of individual houses is easy, but I am not sure how to apportion the site costs, subdivision costs and stamp duty etc. I tried to search but couldn't find anything that matched exactly what I am doing.
Also I will need to apportion the interest, council rates, water charges etc so I can claim the IP portion while the build is in progress, as my intention is to rent it out.
I will be getting professional advice, but just wanted to have an idea before I go and see someone. I have heard too many stories about accountants advising incorrectly. A common one is that you can not claim any interest until you actually rent the property out.

 

Get professional advice! I don't think this is a DIY type of question.

 

I would expect you need a reasonable basis to apportion the cost. Pro-rating based on land area / size would be the first thing I would look at.

 

generally on a reasonable basis. ATO has some guidance on what this could be but might be based on land area generally. If one block is 60% of the area then 60% of the stamp duty relates to this block for example.

The exception is where there are specific costs relating to a specific block

 

Thanks @Perthguy Can you recommend someone in Perth that you have dealt with before?

Thanks HB. Can I argue that subdivision was only required to build the IP and hence put the subdivision costs in investment basket?

 

no!

 

Sorry no. @Ross Forrester works in that area and may know someone though.

 

Taxation Determination 97/3 paragraph

"4. If an original land parcel is split into two or more blocks, and you are the beneficial owner of the original land parcel and each of the new blocks, section 112-25 provides that each element of the cost base and reduced cost base of the original asset (worked out at the time of the split) is apportioned in a reasonable way and included in the corresponding element of the cost base and reduced cost base of each new asset.


Example 2

John subdivides his post-CGT land into two new blocks with a view to selling one and retaining the other. He incurs the following costs:
survey fees; legal fees; subdivision application fees; and cost of connecting electricity and water only to the subdivided block to be sold.
John includes all of these costs in the relevant cost base of the block to be sold. We consider that this is not a reasonable apportionment. It is reasonable to apportion the survey, legal and subdivision application fees over both blocks. If the blocks are of unequal market value, an apportionment of costs in proportion to the market value of the blocks would usually be a reasonable apportionment. As the cost of connecting the electricity and water relates only to the block to be sold, it would be reasonable to attribute this cost solely to the cost base of this block.A reasonable apportionment of the cost of the land itself can usually be achieved on an area basis if all the land is of similar market value or on a relative market value basis if this is not the case."

 

Ross merely explains that a reasonable apportionment based on qualified expertise may be needed. ie a valuer needs to apportion the cost. The ATO valuation ruling says that

 

Thanks everyone for helpful replies.