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CGT or tax implication on Development

Discussion in 'Accounting & Tax' started by fairy, 1st Jun, 2016.

  1. fairy

    fairy Active Member

    Joined:
    24th Jun, 2015
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    Location:
    Canberra
    I have recently purchased a land which i am looking at sub dividing and build 3 X single story home.
    I am just trying to find out whether i would get 50% CGT off if i build 3 house on the land and sell them sometime after mid next year ? Purchased the land on May 2016.
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
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    Location:
    Sydney
    Unlikely.

    When you approach a development with a view to generate profit its possible you have an enterprise. It may need to register for an ABN. Tax Ruling MT 2006/1 explains it in generic terms.

    That can lead to GST since sale of new residential premises or land may by a taxable supply. So 1/11th of the sale will go to the ATO. This may be reduced if you can use the margin scheme. If you bought land from a developer that may not allow you to use the margin scheme and that can cut into profit. You may also be able to claim GST on build costs etc BUT there is a catch to that. You can only claim it when a sale is likely not when you are building.

    Income arising from profit making intentions is generally not a CGT issue. Its taxed as ordinary income. This is "old law". Prior to CGT laws in 1980's the same law applied.
    In some cases you may be able to choose to take some of the profit on the land (only) as a capital gain but this needs to be explored. The timing of the sales v's when this CGT event occurs often falls into different tax years which can hurt cashflow.

    You need to ensure you get sound personal tax advice so you dont underpay or overpay taxes. These will all affect profit and its a very high audit detection risk.
     
    Terry_w likes this.
  3. fairy

    fairy Active Member

    Joined:
    24th Jun, 2015
    Posts:
    42
    Location:
    Canberra
    I am new in this field. Never done development before. I bought the land on my name. I bought that on Auction and settling in 30 days. what would be my way forward ? Thanks in advance. I will appreciate if you could simplify this for me.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Development = income tax
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,370
    Location:
    Sydney
    Get personal tax advice from a property savvy tax adviser.