CGT payable for rental property which is being developed?

Discussion in 'Accounting & Tax' started by AnneC, 23rd Aug, 2018.

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  1. AnneC

    AnneC Well-Known Member

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    Have had a rental property for 15 years. Used as rental for all these years. Just obtained a Planning Permit for Townhouses. The house is owned in our own personal names. As we have owned the rental for 15 years and used it only for rental, my understanding is that if we sell the house with the planning permit, we would qualify and retain the Capital gains tax 50% concession upon selling.

    Would appreciate some feedback on the following scenarios

    If we were to engage a builder and develop in our own name and then sell.
    Would the CGT concession be completely lost or would it be retained but only for the time the property was rented out for??
     
  2. Terry_w

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

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    It might pass from capital account to revenue so both
     
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  3. AnneC

    AnneC Well-Known Member

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    Hi Terry,
    Thanks for the post. Does that mean that it was initially capital account and then it passes to revenue. So what happens to the CGT component. Will CGT be payable for the time it was capital account and then tax on profit for when it is a revenue account.
     
  4. Terry_w

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

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    Yes. It can be a deemed CGT event. So CGT could be triggered before selling.
     
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  5. AnneC

    AnneC Well-Known Member

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    What type of event would trigger CGT ? Application of Planning permit? Approval of planning Permit? Demolition? Building permit application and/ or approval. These are all steps to get it ready for development but not the actual start of the development. Or would it be when the actual development commences with the excavation etc?
    And if CGT is triggered , when would it be required to be paid as not sale has yet occurred??
     
  6. Terry_w

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

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    You would need to read some of the case law to find out.
     
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  7. AnneC

    AnneC Well-Known Member

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    Can you please suggest a particular ruling or case law which would be relevant to our situation?

    Thanks, Terry
     
  8. Terry_w

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

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    Not off the top of my head, but there is plenty out there.
     
  9. AnneC

    AnneC Well-Known Member

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    Where can I find them out there. Do you have a link ? Thanks
     
  10. Paul@PAS

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

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    Really - You want a free answer ? Or want advice. Pc is aforum - You want personalised free tax advice ? Very unrealistic. Its really annoying to ask a professional for free personal advice on a website

    Walk into a hospital needing surgery and try that. Doesnt work that way.

    My suggestion is to seek personal tax advice so you can save tax and avoid concerns. Loads of issues may impact a situation like described.
     
  11. Paul@PAS

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

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    Why not ? Your expectations are frankly unrealistic.

    If I said GST and no CGT you would think I'm being extreme. So what makes it subject to CGT ? And saves tax ?
     
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  12. Simon Hampel

    Simon Hampel Founder Staff Member

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    I think what Paul and Terry are trying to say is that "it's complicated" and there are no simple answers because it very much depends on a lot of circumstances.

    Perhaps if someone has experience with developments of this nature, they could share their experience (which would not be advice!), but otherwise you may need to seek out specialist tax advice.
     
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  13. Mike A

    Mike A Well-Known Member

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    concept of mere realisation of a capital asset vs profit from an isolated transaction vs property development business

    if you want case law read

    Statham & Anor v FCT
    Stevenson v FCT
    Casimaty v FCT
    McCorkell v FCT
    XTJT v FCT
    Whitsford Beach v FCT
    Case R51 84 ATC 392
    R&D Holdings Pty Ltd v FCT

    If it is under a profit making scheme it may be dealt with under both revenue AND CGT provisions.

    however section 118-20 means that you aren't taxed twice.

    complex . yes. the facts (small details count). means there is NO generic answer. there is NO general answer. Every single situation is entirely different.

    one person could undertake roadworks on their land and it was CGT. another does it and its a profit making scheme. the same thing done for different reasons can change the result. that is why tax lawyers have jobs and are well paid.
     
  14. AnneC

    AnneC Well-Known Member

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    Thank you.
     
  15. AnneC

    AnneC Well-Known Member

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    Thank you.
     
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  16. Paul@PAS

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

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    The new DRAFT ATO paper which will soon be released as a ruling may assist to get familiar with the complexity tax adviser must consider in this area and why "it depends" is a fair response.

    Thread link : Real tax cases of property and construction
     
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  17. AnneC

    AnneC Well-Known Member

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    Thanks, Paul. It does appear to be quite complex. Is the draft ATO paper available?
     
  18. Terry_w

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

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    Please make an effort to help yourself instead of relying on everyone else. There is a link to the draft paper in the thread that Paul generously gave you.
     
  19. Paul@PAS

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

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    I suspect many people will read the ATO draft and seek to argue their position that sales are mere realisations. However I see this draft as far more complex and it does seek to curtail many taxpayer views regarding CGT exemptions and CGT discounts. Some interesting terms and views in the paper which are far tighter than past views but none of its truly new.

    A few areas eg landbanking, developer agreements, historical acts by parties, early intentions, changed intentions and changed use of land, constructive trust arrangements etc all seem to bring more taxpayers outside the general CGT exemption views.

    This draft ruling also has a possible application for GST
     
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