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CGT advice needed. Build or sell.

Discussion in 'Accounting & Tax' started by ej89, 2nd Sep, 2015.

  1. ej89

    ej89 Well-Known Member

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    Hey,
    We currently own a few blocks of land in one estate. We are looking to build on all except one and sell that one.

    Purchase price 420k. Re-sale price 570k.

    Build cost 230k. All up product is 650k. If we sell the land instead of build one, what would be the CGT on a salary of 60k/year and profit? Would it be smarter to build on both, live in one for a month, sell it for 830k and then move to the other? Would that mean the place is CGT free? That way we would have a profit of 180k rather than 150k which gets taxed on?

    Have I got this right or wrong? Still learning about the tax stuff :). Also, what would've happened if we bought one of these blocks in a trust instead of individual?
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Its doubtful that CGT may even be a issue. Sorry that may not mean CGT free. It means ordinary income tax. A person who acquires more than one lot in a dev can hardly argue they were thinking of living in any or all. So there may be a profit intention.

    Very specific advice is needed. You may also have a GST issue.

    All of your suggested tax free ideas are a fail. Not even close.
     
  3. ej89

    ej89 Well-Known Member

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    We bought each lot in different names, does that change anything??

    If we build an IP on one, and PPOR on another and decide to sell PPOR after a month and turn the IP into a PPOR, what implications does that have?
    What GST issue?
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    No. You need advice. Your views are simplistic and are just wrong.

    I have just edited this as my reply seems harsh. Why did I say what I did?
    - Tax law applying to profits existed before CGT laws
    - The main residence rules really dont care who owns
    - The main residence rule has a ownership test. One month fails
    - GST rules apply over the top of other tax law
    etc.

    High risk target
     
  5. ej89

    ej89 Well-Known Member

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    That's why I mentioned it on here, so I can learn and be taught mate... The long term plan was to live in all except one we'd rent but now considering re-selling so wanted to see the options.. I'm just going off what I've read...

    I need a good accountant who's smart and approachable too.. know any?
     

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  6. Scott No Mates

    Scott No Mates Well-Known Member

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    @ej89 - Paul wouldn't be hawking his wares unless he knew his stuff. ;)
     
  7. Brian84

    Brian84 Well-Known Member

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    Maybe so but there is a right and a wrong way to do it. Ej89 posted this thread to learn and gets some advice and Paul replies telling him he is a failure.
     
    ej89 likes this.
  8. MRO

    MRO Well-Known Member

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    Paul is helping @ej89 to avoid a costly mistake.

    So many people just jump into property with a very basic knowledge of one of the biggest cost associated with property - tax. This is a classic example.

    If the OP had gone through with the plan they could have cost themselves a lot of money. The hard part of it all is there quite often is no black and white - just a lot of grey. The intention of the investor is quite often the most important determiner in the tax outcome. As expressed above their is a clear profit motive from a buy and sell strategy. That generally points to 50% more tax than the OP has anticipated along with the added 'kicker' of GST being payable.
     
  9. ej89

    ej89 Well-Known Member

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    There was no motive specifically to sell and make profit.. They were all bought for family members to live in, but now considering there may be an option to make a profit we are considering our options and what is possible and how that would affect it.. The issue isn't with Paul's advice.. The issue is the manner in how one responds to a person's question.. Paul may know his stuff, but he sounds like a bloke I wouldn't go to for advice based purely on how he responds..

    My thoughts may be "simplistic, and a "fail" but I'm going off what I've read here: https://www.ato.gov.au/General/Capi...-estate/Is-the-dwelling-your-main-residence-/

    "The following factors may be relevant in working out whether a dwelling is your main residence:
    • the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence"
    I am happy to get advice obviously from a professional but was wondering what some options were and whether they could be answered here beforehand..
     
  10. Singo

    Singo Well-Known Member

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    @ej89, you still don't get it. This is a public forum and Paul is a professional. He can't advice you here what "your motivations should be" for a better tax outcome. It will get him as well you into trouble.

    If ATO matches your user name to who you are, you may get some big surprises!
     
    Last edited: 3rd Sep, 2015
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    No offence intended but reality is many people do seek to DIY tax in areas that are quite complex and that many accountants fail to understand. They then suffer the consequences. Its often far cheaper and easier to take guidance and work with someone who can steer the ship away from (hidden) rocks and sandbars.

    Initial guidance isn't that hard and is generally very broad so that the client identifies where the rocks and sandbars are hidden. They know what records they will need and how to approach things. Then from time to time they have further questions. Not too difficult or costly in reality. They use me on demand so to speak.

    Then I have those who come to me after they have run aground. They get a questionnaire like the one below and sweat starts to run. The problems by that stage are significant and penalties are a real concern. GST savings have been missed altogether and profit takes a hit. These are the clients I don't like. They have a belief that my time has no value and I should be able to fix it all for a few hundred. Reality is far from that. They have convinced themselves its not complex and they know better. They always have a mate who says .....

    I'm not in the business of sharing all my 25 years of experience in property taxes in detailed posts either. The complexities are substantial and are inter-related. Personal advice is really the only solution. Its my job to break that down so its look simple and support you. Its a bit like asking your Doctor for a diagnosis and prescription over the phone. They don't do it for a reason.

    My tip - Find a good property tax adviser and work with them from start. We love to help our clients and share our knowledge to save YOU $. Just not for free since if I post and you follow my guidance you may sue me.
     

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  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    That view is incorrect and relies on binocular vision to one paragraph on their website. If you scroll down further it tells you that there is a exception for a construction / renovation etc "and you will continue to live in it for at least three months." That's a great example of cherry picking a solution. Its dangerous as you can be wrong.

    Even then if there was a profit making intention the main residence exemption may or may not operate as you consider it "should".
     
  13. ej89

    ej89 Well-Known Member

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    Fair enough mate. I didn't realise the potential consequences on advice/comments on a forum tbh.
     
  14. ej89

    ej89 Well-Known Member

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    I noticed that just now. Didn't see it before mate. Will have to live in it for 3 months then.
     
  15. Singo

    Singo Well-Known Member

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    Ah, let's not start this all over again. Please get professional advice.

    Btw, I am not even a client of Paul. I asked the same questions you are asking and got the same "rude" replies from him and Terry as well if I remember correctly :p But they are knowledgable and know what they are talking about.
     
    Last edited: 3rd Sep, 2015
  16. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Not using the kitchen stove for 3 months and without good reason might mean you also fail the main residence test. yes its true check out Erdelyi v FCT
     
  17. ej89

    ej89 Well-Known Member

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    haha so that's someone who pretended they live in it for 3 months then sold?
     
  18. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    There are loads of cases where ATO looks at other indicators to determine the MRE doesn't apply. Real Estate ads that proudly boast brand new never lived in and pics prove its unfurnished etc... ATO can also be assisted by the state govt too. (OSR, registrations, licensing electoral etc)
    The ones that astound me is where their tax agent appeals it and admits to a error.