CGT on subdividion

Discussion in 'Accounting & Tax' started by barney118, 24th Jul, 2015.

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  1. barney118

    barney118 New Member

    22nd Jul, 2015
    Hi I am a long time lurker/reader and I'm looking at a IP and trying to understand CGT. The situation is I'm looking to buy a house and land and building a second house on it subdivide and maybe sell. How do you apportion the split effectively you are creating something out of nothing say the land value is 300k does this mean 150 for each IP? So if I spend 250 k to build gives me a cost of 400k. Assume I payed 550 initially could you say the vacant block is worth 250k so your cost is 500k. So I'm getting to the point assume you sell for 700k a profit of either 200 or 300 so which one is correct to calculate CGT?
    I'm assuming the auditor general would value both blocks at 250 k each once subdivided.Many thanks.
    Last edited: 24th Jul, 2015
  2. Joshwaaaa

    Joshwaaaa Well-Known Member

    22nd Jun, 2015
    Might have to speak with your accountant, but i believe if you buy, subdivide, build then sell you will attract gst as it will be seen as a business venture.
  3. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    You should not assume CGT will apply in a development like this. It could be just income tax.

    To work out the cost base you would have to apportion the land. So you would need to work out the value of the land that relates to the land and house part and the land for the new split. The work out the costs incurred so far and apportion it too. From the point that they are split any cost associated with the new block can be claimed against the income of that block

    A valuer would do the working outs.
  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

    18th Jun, 2015
    Barney - There are loads of tax issues with your proposal. Most important is to understand what taxes and ensure your budget allows for them. That way you will calculate an estimated profit rather than think you made a profit and then lose it to taxes.

    Some issues:
    - Highly likely GST would apply to the new build not the existing
    - No CGT. CGT doesn't apply to a situation where there is a profit making intention. It doesn't need to be a business either. An isolated transaction can be the same.
    - Structuring ownership needs thought.
    - Land tax ?
    - GST can be substantially reduced if the margin scheme is used. Maybe.
    - GST on build may also be claimed to offset the GST on sale
    - Apportioning of original cost - Likely a valuer is needed. Not complex.
    - Accounting records...Its likely some costs will be specific to the new property and some will be shared. Some may even relate to the old property. Those that relate to the new build may need to also account for the GST on build costs etc.