Demolish PPOR and Build 2x Houses - CGT Implications

Discussion in 'Accounting & Tax' started by Shane R, 27th Jul, 2015.

Join Australia's most dynamic and respected property investment community
  1. Shane R

    Shane R New Member

    22nd Jul, 2015
    Hi All,

    I'm currently looking at demolishing my PPOR on 850m2 and build 2x Houses on this block.
    Upon build completion will I still be able to sell 1 of these houses and claim CGT exemption for PPOR?

    I'm trying to determine the best best way to reduce tax implications for this situation?

    Thanks for your advice :)

    Shane R
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

    18th Jun, 2015
    CGT will NOT apply to this scenario... Well not all of it.

    The Main residence Exemption ends when the property ceases to be your residence. A CGT event occurs when the property becomes trading stock of a enterprise . You have two choices...Use cost or market value.

    If the main res exemption applies up to that date the smart money is on using market value. That way the higher value is exempt.

    Now the profit on the rebuild is subject to ordinary income tax. And GST applies to sale of new resi property. There are ways to minimise the GST and valuation / apportionment issues will apply.

    Loads of tax issues in your proposal and important you get them right or your profit will be consumed by taxes you either didn't budget or taxes you over/under estimated.

    If you decide to keep one then the profit wont be taxed on that one, no GST etc and a new MRE starts all over again on a higher cost base. But you have to hold onto it for a fair time (5years) to avoid the GST clawback.