Buying & selling within 12 months = NO CGT?

Hi all

Singed a contract to purchase a block of land for $189,900 in September 2017. 10% deposit was paid at the time and titles due sometime within 24 months but it is looking to happen towards the end of this year and then settlement will take place.

The prices in the area I have purchased in have shot up a little and local agents are telling me I should be able to get somewhere between $280,000 to $300,000 if I put it on the market today.

My question is, if I put the block on the market and settlement takes place whenever the developer has titles and I have a capital gain for arguments sake of $100,000 does this not have any capital gains tax payable ad is in fact classed as assessable income as I didn't own the block of land for longer than 12 months?

Or for arguments sake does my period of ownership for the calculation of capital gains tax start from the date I signed the purchase contract back in September 2017?

Regards,

alicudi

 

Depends on the date of the sales contract (as this is compared to the purchase contract) and intentions when you bought the land. This will determine whether the change in value is:

1. Ordinary income - Affecting possible GST too. There is a way to substantially reduce the GST issue. GST applies to land sales that exceed $75K where the supply is made by an enterprise. I would assume a intention to trade land for a profit is caught.
2. Discounted gain - 12mths + - 50% is taxed; or
3. Non-Disc gain - Less than 366 days (1 year + 1 day). Full gain is taxable.

CGT isnt a seperate tax v's income tax. A gain is either discounted or non-discounted if its a CGT asset. If its not a CGT asset then its isolated profit making and the GST issues need to be considered. Dont ignore it as the ATO would hit you up with a GST bill + penalties and you wont have a way to recoup it.

Selling costs for the legals and agent will also reduce the amount involved.

Other consideration is what is the value if you finalised a site build and then sold.

 

Hi Paul@PFI

Thanks for your most informative reply.

My purchase contract is actually dated 23/08/17 and titles due within 24 months which is when settlement occurs, it is looking like settlement will occur late this year though.

My original intention when I purchased the block of land was to build on it and live in the house.

Going by your point "3" above, is this 366 days from my sales contract date, even if settlement has't occurred yet or 366 days from when settlement takes place?

Regards,

alicudi

 

CGT doesnt care when settlement takes place. Your rights to title are a CGT asset. When property title settles there is a rollover to the real asset. You shouldn't offer / sign a sales contract until PERHAPS 24/8/18. This should be checked by your solicitor - Get it wrong and its an expensive error.

Consider using an option arrangement depending who buyer is ? Selling before registered title exists will involve some legal advice as may the GST issues. You seem not to have a GST issue but the contract needs to address this too for your protection. Its a bailout clause which may allow margin scheme to operate IF ATO was to review the GST position and find the vendor (you) liable to GST. It would be a safety net.

No first home buyers issues or concessions claimed ?? Land tax threshold ? You are a tax resident of Australia the whole time ?

 

Hi Paul@PFI

Ok your first response was a little confusing for me, but your 2nd response straightens it all out for me and is what I understand the situation to be. Agreed now that I shouldn't even contemplate signing a contract until 24/08/2018 as I will be punished immensely it seems.

Thanks for clarifying the rollover from a contract to a real asset and that CGT doesn't care when settlement takes place as it looks at the contract date.

No first home buyer issues or concessions claimed, I do have land tax issues, I am a permanent resident of Australia since birth.

Regards,

alicudi

 

My initial thoughts are to use an option agreement to delay the disposal date to ensure you meet the 12 month holding period, however I can't speak to the duty implications of this in VIC.

 

Hi all

Well after starting this thread yesterday and taking in the good replies here and speaking to my accountant and family members it seems that the best approach to proceed with is in fact still to build on this piece of land and if I really still want to sell, just sell it after living in it for 12 months.

This way I can still profit from the increase in prices that Seagrove estate has gained and don't have to pay any tax on the profits. But I know what will happen, if I build and shift in for 12 months I will stay there for at least 5 years which isn't a bad thing and was my original intention.

Regards,

alicudi

 

The time you live in it can be as short as three months after commencing occupancy through to signing the contract of sale. Reason ? There is a special CGT rule affecting renovated and built premises. It requires you move in as soon as practical after building is complete and retain the premises as your home for three months. If you do the main residence exemption backdates to the land acquisition.

I mention this in case you think 12 months is an issue. Its not otherwise.

Assumption : You have no spouse and neither of you claim another property as main residence for same period of time

 

Hi Paul&PFI....your responses are appreciated.

Does "land acquisition" date refer to the contract date when I originally paid a 10% deposit on the block of land (24/08/17) or does it refer to settlement date on the block of land which is unknown at present?

Regards,

alicudi

 

Does this apply to the FHBG too? I thought you had to leave in the property for 12 months also for the CGT.

 

no

 

Incorrect. Provided the owner and their family move in and fully occupy the property as soon as practicable after ownership occurs then the exemption is satisfied. In some cases that period may be brief but a plan to briefly reside and move out may fail the exemption - It must be intended to be the main residence not a brief stay merely to meet the CGT test.

If the property was newly constructed or renovated then additional tests may apply and the persons must reside at least three months.

The 12 month issue is a general issue for taxable CGT events. Provided the asset or interest has been owned for at least 12months the taxed amount is halved.

 

Thanks guys, Luca