Cost occurred after Contract of Sale signed & before settlement takes place

A+B (tenants in comment 50% each) owns land A, and construct two townhouses/subdivide it to Lot 1 and Lot 2.

Jan 2017 - Contract of Sale signed, Lot 2 was transferred to B from (A+B) at the market value $500,000 - Land cost + Construction at frame stage

Jan 2018 - Occupancy permit issued - B moved into Lot 2

July 2018 - a subdivision took place to split the property into Lot 1 and Lot 2, new titles issued, followed by a partition of Lot 1 and 2 pursuant to the Contract of Sale and a partition need was prepared for the transfer.

Aug 2018 - settlement of Lot 2 has taken place.

Oct 2018 - B moved out and rented out Lot 2

Oct 2020 - B decided to sell Lot 2

Between Jan 2017 contract signed and Jan 2018 settlement, additional $300,000 spent on the construction of Lot 2, additional $400,000 on Lot 1 (reasonably apportioned) .

My question is, when B sells Lot 2, is the cost base including $300,000? (the concern is: the $300,000 occurred before settlement by A+B, technically B did not have the full ownership of Lot 2, would B still be entitled to add $300,000 into the cost base in the future)

 

Was the construction done before the partition? If so it would need to be apportioned.

 

Thanks Terry, when you say partition, you mean Partition Deed? The Partition deed was prepared at settlement.

When you say apportioned - do you mean for example, if 40% of 300,000 = 120,000 construction cost is on Lot 2, then B can add 120,000 in the cost base in the future even though the 120,000 before settlement?

 

Partition would occur when each person starts beneficially owning each lot which might be when the deed is signed.

If you can demonstrate that particular costs are associated with one lot they can form part of the cost base of that lot. If costs apply overall to both lots they would need to be apportioned on a reasonable basis.

Sounds like you need to get some tax and legal advice..

 

Thanks Terry, I didn't make it clear in my original post, I've now updated it.

 

Thanks Terry, I've updated the original post. My main concern was the additional construction cost occurred before settlement, technically B did not have full ownership of Lot 2, would B still be entitled to to add that cost into the cost base...

 

they might or might not, depending on the circumstances.

 

are you able to elaborate more? If not, that's ok. Thanks very much.

 

i am confused as to what happened

A owned land and then transferred 50% to B? This is a CGT event which the main residence exemption can't apply. Also changes future tax outcomes and cost bases.

Then they were joint owners

Soon they then partitioned the loan. This is also a CGT event. Was it declared? Cost base consequences too.

Then B built on their lot? If so I would think the costs of this construction could be attributed to B - generally. Unless there was construction on the other lot at the same time.

 

A and B purchased 'one property' at tenants in common structure 50% each.Then they knocked down the old house on the land and built 2 town houses, one on lot 1, one on lot 2, then they entered into Contracts of sale to transfer Lot 1 from A and B to A, Lot 2 from A and B to B.

The transfers have been declared as a CGT event in that A and B's Individual Income Tax Return (apportionment of costs between Lot 1 and 2 based on valuation report).

Then A and B continued to construct the two townhouses on Lot 1 and 2.

Then construction finished, occupancy permit issued, A moved into lot 1, B moved into lot 2. (so they moved into each lot before settlement).

Then back to the original post:
July 2018 - a subdivision took place to split the property into Lot 1 and Lot 2, new titles issued, followed by a partition of Lot 1 and 2 pursuant to the Contract of Sale and a partition need was prepared for the transfer.

Aug 2018 - settlement of Lot 2 has taken place.

Oct 2018 - B moved out and rented out Lot 2

Oct 2020 - B decided to sell Lot 2

Between Jan 2017 contract signed and Jan 2018 settlement, additional $300,000 spent on the construction of Lot 2, additional $400,000 on Lot 1 (reasonably apportioned).

My question is, when B sells Lot 2, is the cost base including $300,000? (the concern is: the $300,000 occurred before settlement by A+B, technically B did not have the full ownership of Lot 2, would B still be entitled to add $300,000 into the cost base in the future)

Hope this is clear.

 

If subdivision happened before the partition what was partitioned?

It doesn't make sense to me.

 

Partitioning occurred after acquisition and after build ? Doesnt sound right at all. Did a stamp duties lawyer give advice ? Sounds like a trust transfer and dutiable more than once too. Perhaps A & B were acting as trustees for their respective intended interests - Thats not a partition.

If there is more to this site than 2 lots there is also the issue of GST. My brain hurts