Join Australia's most dynamic and respected property investment community

CGT exemption and developer or individual

Discussion in 'Accounting & Tax' started by Cactus, 6th Apr, 2016.

Tags:
  1. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    996
    Location:
    Melbourne
    Hi I received some accounting advice that was contrary to my understanding and hoping that some of the accountants here may be able to offer there opinion.

    Scenario is my partner bought an OTP lot which won't title until about 13/14 months from contract date. Then sells it at say month 13 and settles it back to back with the original vendor.

    1. Would this ordinarily qualify for the CGT discount?

    2. If my partner and I are carrying out 2 developments in a Trust and own or buying several properties in our names and Family Trusts name will we still qualify?

    Thank you.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    1. the 12 months generally starts from the date of the contract, not settlement.

    2. Perhaps, depends on the circumstances.
     
    Cactus likes this.
  3. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    996
    Location:
    Melbourne
    1. Great that was my understanding
    2. My account seems to think we may struggle due to the timeframes and that we do other developments. He would be less concerned if it was a couple of year hold post settlement.
     
  4. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    1,104
    Location:
    Bali
  5. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    996
    Location:
    Melbourne

    Did you read it? Not sure how it helps me or answers my questions. It's about GST and taxable supply in relation to OTP sales. Absolutely nothing to do with CGT timing and wether I can get exemption.

    FYI before I posted on here I googled and searched the ATO website. I also spoke to my accountant briefly and will be meeting him to discuss in more detail. In other words I spent more than your 12 second search before coming here for someone to fix all my problems.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    TD 94/89

    Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? TD 94/89 - Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? (As at 29 November 2006)

    This answers q1 - with the old legislation listed, but the equivalents listed at the bottom.
     
    sanj and Cactus like this.
  7. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    996
    Location:
    Melbourne

    Thanks Terry I stumbled across this in my searches as well but I though this was more to do with timing for which FY to include the CGT event in not so much when is the 12 months calculated from. That said I did also notice that the notes gave reference to a date of contract being the date of importance.
     
  8. Rob G

    Rob G Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    168
    Location:
    Melbourne
    s.115-40 anti-avoidance.

    Was any agreement or understanding (not necessarily contract) established within 12 months of the OTP contract.

    i.e. did you have an agreement with the vendor that you will transfer it back to them.

    'Agreement' is a vague word implying mutual intention but less than formal contract or legal relations.

    An agreement might be inferred if there is a clause or option in the original contract priced such that it is more likely to be exercised from the start.

    Better get legal advice.
     
  9. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    996
    Location:
    Melbourne
    No, I would be selling it to a third party not the original vendor. I am sure this is a common scenario with OTP I remember people did it in the 90s with apartments all the time. I entered into a contract of sale not a put and call or option agreement.
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Why was the lot purchased ? Its possible CGT wont apply and that ordinary income rules could apply. ie no discount. where the nature of the transaction was to produce profit. A mere realisation perhaps not. There could be GST issues too if the land is resold,

    Developments generally are NOT eligible for CGT and whether its personally owned, trust or company makes no difference. use of a entity may actually do more harms than good if the entity was undertaken as part of an enterprise. Buying land OTP for a dev can be a GST issue and affect access to the margin scheme which can cut profit.

    Well worth personal advice.

    Example of the GST problems : OTP land is very often sold using margin scheme. You cant sell using margin scheme and may have to include GST in price BUT...cant claim any GST. You could lose 9% of the land value to GST.
     
    Cactus likes this.
  11. Cactus

    Cactus Well-Known Member

    Joined:
    18th Jan, 2016
    Posts:
    996
    Location:
    Melbourne
    I bought the land OTP to build a house and rent. I have received good capital growth in the year so may just I sell it instead. I am not registered for GST so how could I collect in and remit it to the ATO anyway?

    If I bought in my Family Trust which is registered for GST I could understand this as I would claim it on the purchase and remit on the sale.

    It was bought as an investment not as a business or income. I am just considering cutting short the investment timeline due to the growth. We are talking a non development single small vacant lot here.
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Sounds like it could be a CGT issue and not likely to be subject to GST but get advice to confirm.