Capital costs on a development

I'm just wondering where you draw the line on claiming GST on capital costs during a development?
I've knocked down a house on two lots and will be building two houses with the intention to keep one and sell one. There are costs such as the demo which I know I can claim the GST back for 50% based on a 50/50 allocation between the one to be sold and the one to be kept (50/50 is correct as both houses and blocks are identical).

My question relates to things such as the temporary power connection to both block and the QS that I had done prior to demo so that I could claim the scrapping. Both of these things incur GST and I will be using the margin scheme when I sell the one so I'll have to pay GST on the sale so I'd like to claim as much as I can along the way. Are thing such as power and a QS able to be claimed back for GST?

 

You didnt get tax advice before starting ?
I would step back and do that. It should also address margin scheme, site valuation (?), apportionment, GST on costs, GST on sale and a bit more. Your record keeping is also important. You say you will live in one - Selling and assuming its your main residence can be a concern too.

 

I did get tax advice and I asked my accountant about claiming the power supply to the site during construction and he said that he doesn't believe that the GST can be claimed but it would be claimable as an operating expense and therefore deductible from income.

I always assumed that it would be deductible from income but also assumed that as I'm paying and claiming GST on one property that the GST is claimable for all expenses. He wasn't certain. It's a very minor amount (maybe $100 in GST) so it wasn't worth pushing the point, I was just curious so I asked here.

In regards to the other points, I believe that I have a fair understanding of the margin scheme and apportionment but in regards to site valuations, I haven't valued the vacant blocks. I intend on claiming the proportionate GST on all development costs (for the one that I'll sell) and then paying the margin between initial purchase price and final sale price.

I will be keeping one property as a rental to hold for long term.

 

You cant claim 100% of costs or gst if you dont plan to sell 100%. Your advice needs to address all the issues not just a few dollars of gst. Margin scheme is a great way to reduce gst but is only a portion of land cost. Valuer? Record keeping is likely to be more important. Eg payments reporting for co nstruction. If you dont know what that means it could lead to penalties

 

Hi All,

We have a lot that has a 2.7 m fall, which means the landfill will cost us $60,000+/-.

I'd like to know if we can claim this expense as a capital cost and reduce the CGT during sale of the house?

Regards,
-Sidharth

 

What makes you think its a capital cost ? The cost may increase the trading stock value. The one sold on completion perhaps a 50% GST claim but for the other the property may be trading stock and never become a CGT asset. Sell it in 6 years...No CGT discount.

That said 50% of the land fill may enhance the trading stock so less tax is paid.

I have had two client issues about this in two days. Not all tax advisers know property well.

 

If you are building two and selling one 50% of GST can be claimed. For the one sold the ex GST 50% of cost would reduce profit. For the kept one the incl GST 50% would add to its stock value. I would be concerned the records arent being kept well if that issue has come up. Also construction industry reporting would rely on the records. Its pretty simple stuff BUT must be reviewed and addressed on a project by project basis.

The land must be apportioned and or valued depending on situation. There are strategies in that. A "must" for the margin scheme. You cant just value one and extract that from the other.

 

And even if not trading stock need to consider whether it is a profit from an isolated transaction.

 

Yes a minor difference but some sometimes relevant.