CGT 50% Discount and GST on new build

Hi everyone,

Say you buy a vacant block of land and build a new residential dwelling on it under your personal name. Say also that the purchase contract on the land is dated 1/2/2021 and you obtain the final occupation certificate on 1/8/2021. If you sell the property as a new dwelling (or have rented it out for a few months) and the sale contract is dated 1/8/2022 (12 months exactly after the occupation certificate), are you still entitled to receive the 50% CGT discount if you also pay the GST (as it is new a dwelling and has not been continuously rented out for 5 years)?

If so, do you need to hold the property for at least 12 months from the date of the final occupation certificate to be able to claim the 50% CGT discount, or does it work off the purchase and sale contract dates of the property?

I would appreciate any input and answers in relation to the above.

Thank you everyone

 

This is more dependent on your intention of the project rather than the dates.

 

Generally speaking sale of property for profit making isnt a CGT event unless its a CGT asset. (Tax Determination TD92/135) Remember people were selling property long before 1985 and paying tax on it. But back prior to 1985 if you were property investor and woned a rental you could sell it and there was no tax on the profit when sold. But if you constructed to sell it was taxable. Those laws still exist of course. Unfortunately many just jump to the CGT assumption which is incorrect.

I would consider you need personal tax advice to address what your intentions were when the land was acquired and how a build was involved. If that was to build and sell then its likely not a CGT event but is a isolated profit making intention...and a enterprise. That also means GST applies to sale of new residential premises.

Its impossible to guide whether its a CGT asset and if the CGT discount could apply. Its something only personal advice could really achieve.

 

Thank you Paul for your reply.

Generally speaking, is it possible to pay GST on the sale, but also claim the 50% CGT discount or are they both mutually exclusive meaning if you pay GST, you cannot claim any CGT discount?

 

If you pay GST then you are an enterprise which would generally mean you are taxed as ordinary income

 

Thank you for your post Terry.

 

Your intentions would probably be the determining factor

Was it rented out for most of the 12 months you owned?
Did you build the house yourself?
Do you have a history of buying and selling houses (ATO wouldn't be able to tell if their new builds or existing residential initially)?

In saying that you would be best getting a private ruling about your circumstances. While its free it might be best to get a professional to assist your application so thats its written in a way to support you and not confuse anyone working at the ATO

 

Yes. GST applies when a enterprise is being conducted. That generally will count for both. The key issue I consider first is intention. Then enterprise ....and it doesnt change the intentions despite changes to a enterprise that is planned v one conducted.

eg Fred buys land intending to develop it as a site with 5 townhouses. He plans to sell them all. Market value rises and he notes he can refinance and possibly keep them and sell in 6 or 7 years and then it may look like its a CGT profit. His loan applications etc demonstrate this preferred option. No GST either as its not "new residential premises" when he sells aftre 6-7 years he learns, NO isolated profit making.

Incorrect. His intention and enterprise has not changed that much. He still intends to sell and intention when acquired is key. Not a CGT asset. In 6-7 years when he sells its not a CGT sale and is a isolated profit making venture (TR 92/3) but he did save on the GST...But cant claim any of the GST on the build.

 

No. Best to obtain personal tax advice. Private rulings are generally useless in such cases as self directed applications will not always indicate true facts and be invalid. Tax advice will objectively consider the whole of the circumstaces and advise. eg The issue of a "history of buying and selling" has no application what so ever. Do it once and the first one is also not a CGT sale. I often find my advice process assists a taxpayer to avoid allegations of being reckless as full diary records of the issues and advice are retained.