Property 1 (main residence since day 1 owned by A) Property 2 in interstate (tenants in common 50% each owned by A and B). Both A and B never lived in Property 2 and it will be subdivided into unit 1 and unit. Each person will own half of each unit. One unit will be rented out, one may become the main residence of person B (aware that B can't claim full main residence exemption on this unit) Now A wants to buy a vacant land in interstate (with development plan approved) and build a main residence (move in after new house complete and sell Property 1 at some point, for example, before the construction). What is the best way to minimise tax (CGT) on Property 1 and new property (vacant land + new house). Thank you.
Property A seems exempt based on the main residence exemption. When moving out s118-192 may apply to use the market value at that date as the value that will threafter be subject to CGT later. The 6 year absence rule may offer a limited choice re Property 2 also. If A is sold WITHIN 6 months of moving out its possible that 6 months could be exempt for BOTH A & B. Property 2 seems subject to CGT. However the change to own one unit each may trigger a CGT issue for both people. (Think of disposal of 50% to each other). GST may also be a issue as it would be a disposal of new residential premises. I would seek personal tax advice to address several issues The main point is that a person can only ever claim one property for each day of ownership except for the 6 month issue mentioned
Sell property A, claim the main residence exemption. And build on the land and move into it within 4 years of purchase and stay for 3 months at least. Can't claim 2 properties as main residence at same time, except for 6 month overlap which may not be able to be applied in this case. So the new property will have a small timeframe which it cannot be the main residence, but the CGT will be minimal and may be nil because of the 3rd element cost base expenses. Property 2 should look at transferring units into each name rather than half each. Could potentially be done without CGT. B can then claim one of this was the main residence (assuming A and B not spouses)
Thank you. What about selling property 1 prior to the purchase of vacant land? Will this make the time holding vacant land/new property fully exampt? (A will be staying at parents while holding the land and construction). Alternatively what about purchasing the land first and start the construction within 6 months/sell property 1 prior to the construction. The overlap period is 6 months. Can you please elaborate 3rd element to cost base to possibly make CGT nil? Thank you very much!
Land is not eligible for a main residence exemption UNTIL the new property is constructed and promptly occupied for at least 3 months. It backdates if all conditions are met. But no overlap of dates of course other than if A is sold WITHIN 6 months of moving out. Loads of specifics apply and personal tax advice would be sensible. Nobody knows all the details to give precise answers. eg 3rd element costs are irrelevant if a property is exempt. When we say 6 months the dates are very precise and easy to get wrong. If sold after 6months that whole 6 month period is lost.
Thanks. What I'm tring to figure out is if A sold property 1, then purchase the vacant land and build. Property 1 would be fully exempt from CGT. New property would be fully exempt from CGT after completion of construction given the 4 year rule? (If staying more than 3 months) The property 1 can be sold at any time but I'd like to know when property 1 should be sold in this circumstance, for example, before purchasing the vacant land, after land purchase but before construction. Thanks.
See this Tax Tip 86: Don’t be so fearful of generating income from the main residence Tax Tip 86: Don’t be so fearful of generating income from the main residence and Tax Tip 99: Vacant Land and the CGT Exemption Tax Tip 99: Vacant Land and the CGT Exemption Tax Tip 107: CGT exemption not stay in newly constructed house for 3 months Tax Tip 107: CGT exemption not stay in newly constructed house for 3 months Tax Tip 165: Not all Main Residences are Exempt from CGT https://www.propertychat.com.au/community/threads/tax-tip-165-not-all-main-residences-are-exempt-from-cgt.26254/ Then seek personal advice.
It may be subject to the 6 year absence rule and if thats is that case if sold before occupation of Property B then I see no issue. However the change in value in that time would be either + or - There is no rule that says you must sell one before buying another. That may be a finance issue however
if you have claimed the fhog and stamp duty concessions then sold the place after six months + does the fhog/stamp duty concessions get refunded
