CGT General Discount - Subdividing PPOR

Morning,
I've read so many articles and papers on CGT and subdividing land and now my brain is fried! I take my hat off to accountants!
I would like to know if I would be eligible for the CGT general discount on the 2 blocks of land I have split off from my PPOR? I've had the property for 3 1/2 years and am trying to work out my tax liability. I'm due to meet my accountant in May but my brain is not letting me rest.
The ATO website says:
If you subdivide a block of land and sell the new block, any profit is generally treated as a capital gain subject to CGT.

However, any profit you make is treated as ordinary income (not a capital gain) if both of the following apply:

• your intention or purpose in subdividing was to make a profit.
• the profit was made in the course of carrying on a business, a business operation or commercial transaction.

This is true even if you aren't in business (for example, if it's a one-off transaction by an individual).

So how do I determine if the second dot point is applicable to me? The property is my PPOR, It's in my personal name? I can not seem to find a similar case to mine to see if I fall under this category?
Any help in directing me to relevant comparable cases etc would be appreciated.

 

Get some tax advice, or delve into case law. Or perhaps apply for a private ruling and wait 6 months for an answer.

 

I've been reading so many cases, I feel I might be 1 module into a Law degree ;-). I can not find one where a PPOR has been split into more than 2 lots. I feel that because mine is a 1:4 it automatically would be classed as a business even though 1 is my PPOR and the other will be my PPOR once I build.

 

What does your tax adviser say? Surely you are not doing this without advice?

 

Personally, I'm no lawyer or accountant, but I would be very surprised if there was a CGT discount on a 1 in 4 subdivision.

It seems pretty clear to me that the intent it to make a profit, it is very far removed from someone who's owned a PPOR and wishes to reduce maintenance as they age and sell off the backyard as one lot and let the future owner of the rear lot subdivide it.

Was the intention to subdivide when you bought it 3years ago? Did you seek advice from your accountant then? It's going to be a complex tax outcome if it's your PPOR and then you intend to build a new ppor-to-be in one of the rear lots and sell/rent the exising house out AND sell 2 vacant blocks. I'd say it's income tax and GST

 

Yes I have an accountant advising.
Initially when we bought the house there was no mains sewer so we were splitting into 2 and building a home on the newly created lot (effectively getting a free block of land at the end). So it was simple in tax terms.
Then my neighbour developed their land and as a consequence they brought the sewer up to the corner of our block. We were then able to split into 4 (we had a staged development approval because we had hoped this would happen). This obviously changed the tax implications and my accountant said we might need to get a private ruling by the ATO but to budget on worst case scenario of no concessions. That's how my mind has sat until recently talking to a neighbour (retired lawyer) he was certain that in my case it was not a business and I should research, he was very convincing ... many many hours later I am slightly hopeful but also not getting my hopes up because the ATO wording is very ambiguous and open to interpretation.
It would be lovely to pay less tax but I can not find any cases similar to mine in my hours of late night searching. I was just curious if anyone on here had experience with a similar situation and how it panned out for them.

 

have a search of the private binding rulings database, there will be many similar ones

 

Yes, it was my intention to subdivide and make a profit (by way of a block of land) the proceeds from the sale of my PPOR would pay for the new house build and then Im mortgage free. I'm not denying that at all. All the stress and headaches etc would not be worth doing this unless I was getting something back in return. I have definitely learnt a lot along the way and if I ever do this again I'll be much better prepared mentally and financially.
In hindsight the original plan of 1 into 2 would have seen us pretty much on par profit wise as it is with the current 1 into 4 because the additional costs involved with the extra civil works, apportioning of original cost base across more blocks etc reduces the profit.

 

Thanks, I've got the day off today so I might have a scroll through (not sure whether doing housework or research is more appealing). Can you tell me if the cost base is based on the original purchase price or the valuation carried out prior to the subdivision?

 

Cost base is a CGT term so only applies if CGT applies. For vacant land sold it would be based on the value and a few other costs at time of purchase. Similar for construction plus the construction costs. So essentially you wi pay CGT on the growth while you living in it

 

Ok maybe it's the wrong terminology? What I'm trying to work out is do I apportion the original purchase price of the PPOR ($820k) or the valuation carried out prior to subdividing ($1m) Obviously the latter is more beneficial but in my case it's not a huge difference but just say Bill and Margaret buy their home for $250k back in 1995 and it's now worth $700k wouldn't they be entitled to apportion the $700k because in reality they could have sold it for that?

 

It will depend on the circumstances, but generally not if they sell vacant land or build and sell without it being their main residence.