CGT On off the plan development sales.

Discussion in 'Accounting & Tax' started by Dafullboss, 29th Apr, 2019.

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  1. Dafullboss

    Dafullboss Member

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    Hi Gents,

    Basically I’m completing a development and want to sell a townhouse off the plan prior to completion of build, but I also want to try achieve the 50% CGT discount for holding the asset for 12 months. To achieve this do I need to hold off on signing a sale contract of this developed townhouse until 12 months has passed since I signed the contract to purchase the land ?

    Or is there something I can build into the off the plan sale contract to enable me to sell the townhouse and take deposit but delay the actual sale for CGT reasons until after my 12 months has passed since I purchased the land?

    I’m in QLD as well.

    Thanks for any help.
     
  2. Terry_w

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

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    Yes date of contract to contract if held on capital account. It probably isn't tho
     
  3. Dafullboss

    Dafullboss Member

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    Well it’s owned in 3 personal names with a deed of partition in place for stamp duty on the 3 remaining townhouses but this 4th one we’d want to sell. So if it’s not on capital account I can sign a contract of sale and the 12 months will be measured on settlement to settlement is that right ?
     
  4. Mike A

    Mike A Well-Known Member

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    why do you think it is eligible for the 50% cgt discount ?
     
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  5. Paul@PAS

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

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    GST is also a issue. Thats why the withholding regime has been introduced. To catch vendors who are selling new residential premises.
     
  6. Dafullboss

    Dafullboss Member

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    CGT asset owned by individuals, all be it 3 individuals, held for 12 months prior to the CGT sale event. Am I wrong?
     
  7. Trainee

    Trainee Well-Known Member

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    With a specific intent to develop, build and sell at least one?
     
  8. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Note it's not settlement to settlement. Accountants will clarify but I think it's from settlement when you own it to date of contract of sale not when your buyer settles.
    I won't wade into intent, capital accounts etc.
     
  9. Dafullboss

    Dafullboss Member

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    Yeh that’s how the lawyer structured our deed of partition, 3 PPRs and 1 investment property owned 1/3rd each. The land is currently a PPR for all 3 parties who live there at the existing dwelling.
     
  10. thatbum

    thatbum Well-Known Member

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    Uh oh, this sounds like it could get expensive.

    @Dafullboss are you trying to say you want to sell a townhouse before completion, but also that it was never your intent to build to sell?
     
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  11. Dafullboss

    Dafullboss Member

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    3 townhouses of the 4 were intended to be build to live and the 4th we planned to sell and leave us living in our own PPRs Is that gonna push all 4 of them into a “money making scheme” is that what your getting at ?
     
  12. Terry_w

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

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    it could be partially capital gains and partially income
     
  13. Terry_w

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

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  14. Dafullboss

    Dafullboss Member

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    Interesting. It’s not really an issue which it is i’d just rather know. I believe it’s going to be contract to contract date. But I guess I was looking for backup or clarification. Also it sounds like we may just have to wait this 12 month period to sign a sales contract. Clearly no obvious way around that. I’ve been using Certus Legal in Brisbane who you recommended once to me Terry, maybe I should call them.
     
  15. Dafullboss

    Dafullboss Member

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    The entire project or just the proceeds on the 1 townhouse deemed an investment ?
     
  16. Terry_w

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

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    the 4 intended to hold could be capital account and the one intended for sale revenue
     
  17. Paul@PAS

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

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    1. Is there an enterprise ? YES. Three parties who are neighbours, seeking to jointly develop and undertake a JV with a view to profit and sell one lot. There is also a possible private use issue. The blended mix of intentions doesnt do any favour here. The supply seems to be made by the enterprise even if it is in one name after partition etc. But the problem which thatbum identifies is the date and timing concern. The partition hasnt yet occurred and a sale needs to be contracted. But given there is also an enterprise then the answer remains YES no matter who contracts.
    2. Will there be a taxable supply by an enterprise? YES. Sale of land or new residential premises are both taxable supplies. However, can the margin scheme be used ??? Maybe, maybe not.

    GST applies.
    There appears to be no CGT asset. The very intention to sell prior to occupancy is a definite and clear sign of the enterprise and profit making intention.

    The issue of three properties potentially becoming a future residence may or may not have further concerns. Later sale of new residential premsies could still be a part of an enterprise and given that the 5 year test may never be met then the sale by the first owner could be a taxable supply for some time yet. Just because you live there does not mean its a CGT asset or a main residence. Read TD 92/135. It takes the view that were the income may be proceeds under ordinary concepts then the main residence exemption or CGT discount cant apply. ie profit making. Even isolated profit making. I would be living in those THREE homes for a LONG time to avoid all 3 being subject to concerns.

    This issue needs advanced property tax legal advice. Darryl Richards @ Certus Law may be suitable.
     
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  18. Mike A

    Mike A Well-Known Member

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    individuals can still have a profit from an isolated transaction.
     
  19. Dafullboss

    Dafullboss Member

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    Yeh we have put everything in place to avoid the “profit making enterprise” scenario all loans, applications and documents associated demonstrate this is a home and residence for all parties. The intention of the entire project is clearly to build 3 PPRs the 4th being an investment property is a consequence of the initial intent. We are obviously happy for the 4th to be deemed an investment. After deed of partition takes effect the result post development is each party owns 1 townhouse and 1/3rd of the 4th as an investment. The deed of partition was put in place pre-settlement by Certus Legal. I’ll check out TD 92/135 again and the associated cases that relate to it.

    But you don’t think this is a sound arrangement ?
     
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  20. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    The fourth probably isn't an "investment" as such though?. If the intent was to sell the 4th from the beginning then it's isn't an investment but a profit making enterprise. If your intent was to keep the 4th for a number of years then yes it could be an investment but selling the 4th straight away and OTP at that means the 4th might be considered capital account and it's subject to income tax and not CGT.
    It's not the end of the world but all 3 of you might need to revisit the intent with the 4th and decide if selling now, paying GST and tax is the outcome that you all want. You'll also need some advice from your accountant about how GST will work with the 4th - I assume you have 4 building contracts which should help with this?
     

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