Hi all, New to the forum. I have a property on the Mornington Peninsula VIC (My PPOR purchased in mid 2015) & looking at some options for development. I would like some feedback on my understanding of CGT to make sure I am comparing the options correctly. Option 1: Subdivide the land into two lots, sell the rear vacant block with approved plans. CGT payable on profit made from the sale of rear block. Are all expenses allowed to be taken off sale price? subdivision costs, costs to run essential services to block etc? Option 2: Subdivide land into two lots, build a house on the rear & sell straight away. CGT payable on profit again. Are all building costs allowed to be deducted from the sale price? Option 3: Subdivide land into two lots, build a house on the rear, move into it & then sell after it becomes my PPOR. No CGT to pay. What is the length of time required here? Any help appreciated. Thanks.
CGT only applies to capital assets. First you need to determine if this will be on capital account or revenue account. Assuming capital account. As it is land you won't be able to claim CGT main residence exemption on it so the cost base will be the proportion of the original purchase price plus other costs - apportioned. This could mean it is a high profit if purchased long ago. If building you might want to live in the property for at least 3 months so you might be able to claim the main residence exemption. Consider GST too.
No they must be apportioned. Only to the extent they directly relate to the build on the sold home. And gst payable. And maybe not cgt as it might be development income. Really? Depends on the facts. Most likely not. It comes down to the facts and way you live there.
You will be subject to the capital gains provisions (with a partial exemption) if you build a dwelling on the other block, move into it, don't choose to backdate the date that it starts being treated as your main residence, and then sell it because the dwelling will not have been your main residence for the whole of your ownership period. The period from when you acquired the property until you move in is the taxable period. (These are non-main residence days.) The period from when you move in until you sell it is the exempt period if you don't move out before selling this property. (section 118-185) This will also affect the tax-exempt status of the dwelling that you currently live in (because you can only have 1 main residence). You can choose to backdate the date that this dwelling starts being treated as your main residence (to the exclusion of any other dwelling). The choice applies for the shorter of 4 years before you move in or back to when you acquired the land. (section 118-150). Under Section 118-150 can you can choose to treat a property as your main residence for up to four years before it occurred. Important rule for this one. It must be your main residence for 3 months. It is one of the few section with a time requirement. this is assuming it isn't a profit from an isolated transaction and you need to consider the interaction of it being on revenue account vs it being on CGT account
No mention of GST? GST applies to land sales. Exemption for existing residential premises maybe. Also ways to lower GST (margin scheme) so thinking of 10% is not always the case. GST on costs may be claimed too. eg civils, professional fees (survey, TP etc), etc A range of factors to be explored. Sale of existing resi premises with a DA may avoid GST and also minimise tax concerns. And avoid actual dev risks, financing and costs. All major issues are explained in the developer toolkit. Its a good guide to understand prior to specific advice so a tax plan can be advised on
Yes the issue of revenue / isolated profit making can means its not a CGT asset and moving in for 3+ months is waste of time. (TD 1992/135 is a over simplified TD IMO and being a builder isnt a condition)
Think you mean td 92/135 but here it is. Would shock many people http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD92135/NAT/ATO/00001 If i worked for the ATO i would start a project where people have claimed the main residence exemption and audit every single one. I think the revenue gain would be significant.
I recently had a face to face with a ATO Commr and expressed same view and its not just the MRE - Its willful avoidance of isolated or regular profit making enterprises. Its income tax, CGT (sometimes) and also GST. I believe the ATO could seek minor changes to all standard contract form front pages and they could catch a huge number of avoiders. Impose a (new) requirement that all front pages of contracts be passed to ATO to avoid a new withholding tax. Bingo - Live data !! Front page should ask the question - Is this property being sold for the first time following construction or major renovation : Yes / No. And make it a taxpayer declaration under income tax law so an incorrect answer has penalties under tax law. For companies and trusts who avoid - state land tax and title data could be better used.