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Apportioning land for CGT

Discussion in 'Accounting & Tax' started by dan2101, 12th May, 2016.

  1. dan2101

    dan2101 Well-Known Member

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    Hey all,

    Just a question in relation to CGT and apportioning a block of land that has been subdivided and sold.

    Fred purchased a house on a 1000sqm block of land for 800k. At the time of purchase 800k was the median price for the suburb. This house had been previously on the market for $1.2 million because it was listed as having 'subdivision potential'. The public must've thought otherwise, as the portion of the block that supposedly had subdivision potential was practically a cliff. The house was marketed through several different agents with the price gradually dropping to meet the market. It sold at the price of a normal 4 bedroom house for the area. ie the median.

    The new owner was a skilled builder and after much difficulty subdivided the block.

    The original house was sold for $1.1 million so a capital gain was made.

    Obviously the originally parcel of land needs to be apportioned for tax purposes.

    Would it be reasonable to argue that in fact at the time of purchase the newly subdivided parcel of land had zero value?

    Cheers

    Dan
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    no
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    How do you come to $zero value - contaminated site requiring mediation (AKA London Docklands)? Substantial civil works required to make the site suitable for subdivision eg, retaining walls, earthworks, rock anchors etc?

    That is, did the developer have to undertake 'improvements to the land' as opposed to the erection of structures which are 'improvements on the land'?

    The land would have a value ascribed to it in any case however the amount of work to be undertaken would contribute to the value of the block when it comes to making it a subdivisible portion of the block. Specialist valuation advice would be prudent.
     
  4. dan2101

    dan2101 Well-Known Member

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    Well it was on the market for months and months and the agent we purchased off repeatedly had feedback from potential buyers that 'you can't build there.'

    It sold at the price a normal 4 bedroom house on a block of land would sell for in that suburb - not at the price of a house on a block of land that people thought could be subdivided. As in, if people thought you could subdivide and build there wouldn't the sold price hacve been a few hundred grand higher to account for this - it sold for bang on the median price for the suburb?

    But Scott yes that is correct. Took approximately $120k in excavation to make it a 'usable' block.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    So would you have sold it to me for say $10?
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Its also possible that the subdivision was undertaken as a profit making purpose and CGT doesnt apply. CGT is "new law" and original tax law still treats a profit making use of land as ordinary income and not a CGT issue. Ordinary income tax could apply. And GST as a separate issue. But then the margin scheme would save tax. And the ATO can come looking for their GST later and by then the margin scheme cant be used. This is way too common - I get several a year who failed to pay GST get the dreaded questionnaire who seek help.

    Likely needs a valuer to apportion the cost into the resulting lots as the land may have different charecteristics eg : street v's rear, M2, poor shape, water access etc. Just using m2 may work.
     
  7. dan2101

    dan2101 Well-Known Member

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    $5 for you terry!

    Cheers Paul. Does anyone have a contact for a valuer that is likely to give a valuation in our favour (or as much as possible)? Will get that done and see what comes out.

    Also will he value at the $$& amount at the time we purchased or what he thinks it is worth now? Obviously with a brand new house on there it looks significantly more valuable than when it was a tree covered cliff.
     
  8. sanj

    sanj Well-Known Member

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    did you really just publicly ask for someone to post the name of a valuer, who is licenced and has professional standards to follow, who would be willing to fraudulently value something (ie in your favour) so that you can then pay less tax?
     
  9. dan2101

    dan2101 Well-Known Member

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    Calm down. I didn't mean fraudulently. There are anal valuers that are always pessimistic and there is also the opposite.
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

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    I find that the more risk averse valuers are the ones with insurance. ;)

    As for the valuation being more in your favour - its always more favourable to the person paying for the valuation.
     
  11. dan2101

    dan2101 Well-Known Member

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    Cheers Scott.

    No one is here to pay more tax than they have to. Thanks for the help I'll have to do some searching.
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    This is absolutely allowed. I just didnt say that. There is nothing that prevents a taxpayer seeking twenty valuations and choosing just the single highest value. Bin the rest. Valuation comprises a range between high and low.
     
  13. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The valuation occurs BEFORE the split. You dont seem to understand the concept of apportioning COST.
     
  14. dan2101

    dan2101 Well-Known Member

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    Cheers Paul.

    Yeah you're right I do struggle with tax issues!

    The issue is we have a close friend that has always overseen our taxes which makes it very difficult to up and leave and get an expert in the property field such as yourself to oversee things.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No need to leave - just seek second opinions. If your friend was a doctor and you were diagnosed with cancer would you seek a second opinion?
     
  16. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    This is a good example of having a property savvy accountant. Simple questions will always pop up. And it does reassure when you know you havent make a mess of it. These sorts of quick q's are typically free but can save a fortune if you avoid errors.