Development of a rental property and CGT implications

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.

Has anyone in a similar situation ended up doing the development and what were the tax implications as regards CGT

Thanks

 

Yes that is likely to be the case.

 

I am sorry Terry , but your answers are very vague and are not answering any of my questions.

 

Do you expect extensive legal advice on the net for free without knowing any facts?

 

As you are not willing to share information, perhaps you can refrain from commenting.

 

No!

 

Hi Anne,

As Terry suggested, it is difficult without all the details, however, if you hold a property for longer than 12 months, you are likely to pay capital gains tax based on 50% of the profits.

E.g. If you paid $100,000, and you now sell it for $1,000,000 15 years later, your profit is $900,000. It is likely you will pay capital gains tax on $450,000. This assumes you qualify and meet the necessary requirements. It would be best to engage an accountant to give you the best and most accurate advice.

Just my 2c, I wouldn't rely on it as I am not an accountant nor have much professional finance

 

I pulled this off the ATO: Working out your capital gain

CGT discount method

• Eligibility: For assets held for 12 months or more before the relevant CGT event.
  • Not available to companies.
  • For foreign resident individuals, the 50% discount is removed or reduced on capital gains made after 8 May 2012.
• Description: Allows you to reduce your capital gain by
  • 50% for resident individuals (including partners in partnerships) and trusts

That should be able to guide you a little Sorry I wasn't sure how to edit my above post.

 

Thank you, much appreciated.

 

Another option is to build the townhouses ourselves and we will be keeping for rental. Dont know if should do the build in our own names or in the name of a trust.
If we sell to a related trust, CGT would be payable and Stamp duty.
In our own names, this would not be the case, but tax on rental would be in the higher bracket .
Any suggestions as to the benefits or disadvantages of either ???

 

Just do the sums for both.
If the property was held in trust who would the trustee distribute to?

 

We are approaching retirement. We have adult children and grandchildren. I thought the benefit of the trust might be a lower tax rate on the rental. Our grandchildren are just toddlers .
When our children inherit these properties , would it be best for them if we had held them in our name or a trust, from the a capital gains tax point of view, when they would sell ???

 

Minor children at taxed at up to 66% on income over $416 pa.
However, income from a testamentary trust is taxed at adult tax rates - so it would save tax if you left these properties to family via one or multiple testamentary discretionary trusts, rather than passed control of a trust set up during lifetime.

 

I dont know anything about these testamentary trusts. I will do some research to try and understand this better. Thank you.

 

they are just trusts set up under a will.

Check out
Legal Tip 9: What is a Testamentary Discretionary Trust? https://propertychat.com.au/community/threads/legal-tip-9-what-is-a-testamentary-discretionary-trust.612/

Legal Tip 23: Why Set up a testamentary trust https://propertychat.com.au/community/threads/legal-tip-23-why-set-up-a-testamentary-trust.1262/

Tax Tip 171: An example of how Testamentary Trusts can Save Heaps of Tax Tax Tip 171: An example of how Testamentary Trusts can Save Heaps of Tax