CGT on vacant land for PPOR construction

We have land that was bought over 2.5 years ago, with the intention to build PPOR. We amended the plans and had approved by council, along with an extension of the planning permit whilst we were trying to obtain finance. Bank's process was so delayed and slow by the time everything was sorted we had a surprise pregnancy (happened sooner than expected) and I had to take a year off. So essentially we couldn't manage to get the build loan at the eleventh hour.
I've read that we would have had up to four years to get the build on this land if it's treated as PPOR, have I understood that right?
Since we're on one income and I haven't re-entered the workforce yet (am applying), if we sell due to the aforementioned situation is CGT still applicable, given that we couldn't get the loan? The land has probably gone up in value, but we never intended hold it then sell for a profit, it was purely intended to be our first home. It's a reluctant sale. We haven't claimed any expenses to do with the property in our yearly taxes.

 

Yes 4 years is correct.
If you sell the main residence exemption cannot apply - as there is no residence.
If you put a residence on it then the exemption could apply back 4 years, if you live there for at least 3 months.

But just because CGT will apply doesn't necessarily mean you will have any tax to pay.

 

Thanks for your reply Terry! I've bookmarked your tax tips, so I'm pretty chuffed my post piqued your interest!!

Your last comment- can you elaborate, I.e. explain it to me like I'm a four year old

 

There might be a 'gain' in value, but certain expenses can be claimed against this gain so that there may be no taxable gain and therefore no tax to pay.

Also i should point out the commissioner can extend the 4 year term at his discretion.

 

Land never meets the main residence exemption. So the land is taxable. But its taxed under CGT rules rather than as a profit making venture since your issues seem to be forced on you arent arent a plan to buy land a resell for profit. In that case full tax would apply.

Land cost, duty, legals for buying and selling, selling costs, holding costs (eg rates, interest etc) may all mean there is no profit made. No CGT. But, if there is a profit then only half would be taxed and shared between the owners. If your income/s are low then a lower tax rate may apply to that.

Run the numbers and fearing CGT isnt sometimes as bad as you imagine.

The four year rule means you must build on the land and as soon as practical after completion MUST move in and occupy the home for at least the minimum period BEFORE selling. Then its all tax free.

You need to weigh up if the costs of building etc will add value (tax free ?) over and above the after tax value of selling the land.

The 4 year period can be extended and family issues etc are a common reason the Commissioner will approve (in advance of the 4 years ending is best and then later extended to a specific date). I have seen a taxpayer have a 6.5 year period approved with little issue

 

Thanks again Terry, yep I see what you're saying now.
Thanks Paul, very thorough info. So are holding costs things like loan repayments, council parks and water rates? Then other costs such conveyancing, revised working drawings architects fee, revised engineering plans costs are to be deducted from capital gain, then any remaining profit is cut in half (50% discount rule if sold after 12months?) and said half is then divided into each spouse's income tax and taxed in accordance with whatever bracket income falls into?
I wasn't working so I suppose I won't be taxed much if at all?
Thanks again gentleman, geez I'm learning a lot!

 

Also, if we built the property it would add 200k value on top of land/construction but we're just not in a position to continue..

 

Loan repayments are never a deductible or non-deductible item. You should add in loan interest however., Maybe borrowing costs etc All those costs for the failed build yes should add to reduce the CGT gain.

Happy to help

 

Thanks for clearing that up for me Paul.
One last question, if it's sold before end of current financial year, and with regards to a CGT event, do i go by the sale date or settlement date ?

 

As it would be on capital account based on contract date not settlement date.

Might be worth waiting a few months and getting in into the next tax year so you have 1.5 years to pay any potential tax liability. Well up to may 2020 assuming you use a registered tax agent.

 

Thanks Mike, I'll take that on board. I'm in Melbourne and looking for an accountant for this matter. I'll take a recommendation for one though!

 

Oh you are in Melbourne!

 

so failed build costs like drawings, engineering costs, permits can be claimed regardless of whether they are included in the sale of land?