CGT exemption/discount to dual occupancy/duplex

Discussion in 'Accounting & Tax' started by gach2, 30th Sep, 2016.

Join Australia's most dynamic and respected property investment community
  1. gach2

    gach2 Well-Known Member

    30th Jun, 2015
    To start i do intend to apply for a private ruling with the ATO

    But would like general advice or anyones opinion prior to doing so

    Got 2 scenarios (both different properties)

    Scenario 1
    Purchased PPOR
    Lived 12 months
    Renting out PPOR (<6 years)
    While renting built a second dwelling on lot (dual occupancy with subdivision)
    Intention was to move new dwelling when completed and rent out existing dwelling
    While renting and building due to financial difficulty (eg debts) considering selling both properties
    Able to complete construction (eg negotiate deffering debt payment)
    (for the sake of this thread lets not argue the above facts - I know it can be argued that the intention was development was income and not investment)

    1) Sell both - does CGT exemption apply to both or just dwelling that was inhabited in the 12 months?
    2) Sell older dwelling and move into newer dwelling for a period then sell. Would CGT exemption apply to both fully? Could it be applied to the original dwelling fully, then new dwellling for the period it was inhabited? When did the new dwelling become an asset?

    Scenario 2

    Buy investment property
    Rent property
    While renting built a second dwelling on lot (dual occupancy with subdivision)
    Intention was to build then subdivide but due to financial difficulty need to sell upon completion
    Would CGT discount apply after 12 months of the IP purchase?
  2. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    Scenario 1. I cant see how the exemption could apply to the second property

    2. Depends on the circumstances. Maybe
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

    18th Jun, 2015
    Private Ruling ? Start with personal tax advice before you waste your efforts. Private rulings are not issued for matter of general tax law application.

    The subdivision / build etc of 2nd lot with the PPOR results in a separate CGT asset which cant also be a residence and its treated as if it never was. No exemption on that lot. Apportioning issues. Also if former home has been rented 6 years its then subject to CGT on sale using apportioning with a significant exempt period (perhaps). Main residence will/may have ended ? The sale of the other lot may be a mere realisation however rather than a intent to profit I suspect so a CGT discount may occur but there could well be a issue of intent to profit. Intention is important and should be explored. The issue of later hitting financial issues is not something that changes the tax treatment. There is a body of case law that supports the Commissioner who considers initial intent as relevant.

    GST on the new build should also be explored
    Last edited: 30th Sep, 2016
    Perthguy likes this.