CGT implications on selling land owned outright

Discussion in 'Accounting & Tax' started by noah35, 20th May, 2018.

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  1. noah35

    noah35 Member

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    Hi all,

    I currently own 2 properties, one with an existing home (in which I currently live) and another with vacant land. The existing home is valued at around $380k and the vacant land about $230k.

    I would just like to ask whether I have to pay CGT and how much if I sell both properties. I understand since the property I live in is my PPOR that I wouldn't need to pay CGT once I sell it correct? What about if I sell the vacant land?

    I don't know if it's relevant to say that both blocks of land were as a result of a subdivision. The vacant land is a hammerhead block behind my residential property.

    Thank you in advance.
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    It's very relevant as somethings will need to be apportioned I believe.

    No CGT on your house
    Possibly apportioned CGT on the rear block from when it was no longer part of your PPOR until sale. This bit I'm hazy on accounting wise.
    GST on rear block is quite a possibility as you've created vacant land and selling it
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    How could you possibly say this on the info given? It may be tax free, but it all depends.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Land would generally be subject to CGT (if on revenue account), but it could be exempt if sold together with the main residence to the same person(s). This will also depend on a number of other factors.
    Consider GST too.
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Because I'm not a lawyer or accountant and I'm giving my thoughts freely on the internet.
    Yes there are situations where it wouldn't be tax free if perhaps it's was previously an IP and not his PPOR. I was just giving a basic understanding from the OPs information.

    Shoot me
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You are exposing yourself to being sued. It may appear to some that you know what you are talking about or even qualified to give such an emphatic statement.

    You don't know his tax residency, the size of the block, if it was always the main residence, if he is the actual owner, if he is a trustee, if there is a spouse with another residence etc etc.

    However, it is up to you whether you want to answer these sorts of questions.
     
  7. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    @noah35 my answers are not advice and I'm not qualified to give it.
    If you ask questions on the internet without all relevant information then don't take it as gospel that anything anyone writes is relevant or accurate to your situation.
     
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  8. noah35

    noah35 Member

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    Hi all, thank you for your responses.

    I've lived in my PPOR for the past 5 years. I've separated and refinanced to keep both properties, however I've had to take out an investment loan on the existing property to be able to afford the repayments (I wouldn't have been able to afford it if I had taken out a residential loan). So it is actually an IP that I'm living in. I know there's something called a 6 year rule right? I can still sell it and be exempt from CGT if it is sold within 6 years of renting it out?

    Both blocks are at least 360sqm.

    @Terry_w, I'm not sure what you mean by "if on revenue account". As opposed to? It is land that has been vacant since land division. Assuming I sell it on its own, what percentage do I pay for CGT? And what would determine that I pay GST? If I'm running a business from it?

    Thank you again.
     
  9. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Separated as in divorced/relationship breakdown?

    These questions really are suited to personal advice from a accountant as there is still plenty of information still required to be able to determine how your situation will be handled. This forum is for education of members and answers to your questions can be considered for your education/knowledge but they cannot be considered advice.

    In my opinion it is only an IP if you have rented it out - wether it is an investment or residential loan is probably irrelevant but maybe you mean interest only loan not investment loan?

    Information you probably need to work out your situation
    - is the site in your personal name
    - when did you buy it
    - has it ever been rented out
    - if it was rented out did you first live in it upon purchase and then rent it out and not have a PPOR somewhere else (ie you rented somewhere else)
    - did you have a valuation done on the value of your site prior to subdividing off the rear block
    - are you registered for GST
    - have you previously done subdivisions like this before which might suggest to the ATO that you are doing this as an enterprise

    There are probably other questions but it is not a simple question that you ask and one that should be asked and answered before subdividing a block especially when it's a PPOR as you might be better off tax wise selling it unsubdivided.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Have a read of my tax tips. I have covered most of it.

    Then go and get some tax advice as there would be a lot you could do to minimise the tax potentially.
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    And don't forget to apportion the loan between the house and the land.
     
  12. noah35

    noah35 Member

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    Thanks @Westminster. Yes I separated from my partner. The investment loan is P&I to keep the rate low, otherwise if it was interest-only, the rate would've been a little higher. Appreciate the points you've outlined - I've never rented the place out and I did have it valued before subdividing. Have never operated an enterprise so I'm assuming GST wouldn't apply?

    Thanks @Terry_w. I tried to locate your tax tips, but can't seem to find it on your profile. Could you please link me in the right direction? Also, what do you mean by apportioning the loan between the house and land? I've refinanced my residential property based on the valuation of the residential property plus the extra I had to borrow to pay off my ex. Have I missed something?

    Thank you.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  14. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    These issues will affect each other and will impact both CGT and possibly GST. You need personal tax advice to address all the issues. When you seperate land that is part of the main residence it severs all past use too. Meaning...You retrospectively lose past CGT exemption on a portion. This also affects its tax position. Likely a valuer needs to assist to split the original land in a specific way and at a specific time. Subdivision itself isnt the trigger.

    Selling vacant land needs tax advice specific to your circumstances to ensure any GST issue is identified and dealt with for both tax and legal reasons.