hey all, If four people (2 couples) purchased a holiday house together and have had it for a few years, then they decide that they want to sub divide it and build seperate townhouses, does this trigger a cgt event? Basically, it would mean that the one block of land that was owned by four would result in each couple owning a half of the block each? It sounds simple in theory and that cgt shouldn't apply, but sometimes the ato has some funny ways of looking at things.
Not sure about CGT but for stamp duty purposes I think it comes down to change in "beneficial ownership". If one block of land is valued more than the other then there would be stamp duty payable on the difference.
Thanks John, to cover off that point, each block of land would be about the same size, neither has any real advantage over the other, and there is no money paid to/by either party due to receiving some sort of advantage. So that should be ok, I hope lol
Basically - Yes. and no. It depends what is agreed. A verbal agreement can be held to be an agreement too. Perhaps even a partnership was always contemplated perhaps not ?? That needs exploring. Subdivision and construction in itself isnt a CGT event issue UNLESS any ONE person seeks to individually own (ie subdivided title) and then sell any one lot OR if anyone wants to charge titles on a lot (ie subdivide and hold in any different names to the original holding) . This would trigger a CGT event of the 2 couples (4 people) disposing to just one couple (2 people). Duty also applies (in full or 50% at least depending on some issues and states). Note that GST issues also occur (partition or not) and needs advice. And if anyone seeks to sell any of the four builds YESa CGT event occurs when they agree on the changed use of the land. It then becomes trading stock of each proposed owner (not just the ONE who wants title !!) ie couple A want a separate title this also affects couple B. This is a complex area of tax law and legal and tax advice are a must. There may be ways to reduce & limit tax at this time but all parties must all agree
Thanks for the insight Paul, perhaps I am still being a bit vague. Basically, there is one block, one house owned by 2 couples with a 25% each holding. They want to sub divide the block in half, demolish the house, and then each couple will build their own townhouse or similar, with the intention or keeping it. The curly point that I am wondering if it will be an issue is. Each couple will then have their own sub divided block. So ownership of the block as a whole, will still remain with the four interested parties, however it will chance from 25% each of one block, to 50% of half a block. So whilst it remains the same, its kinda different - if that makes sense? haha
To clarify, 2 couples = 4 people. Each person has a 25% share as Joint Tenants? I don't think that subdividing and building 2 houses will trigger anything if both properties are still held as JT 25% ea. BUT.. What happens if one couple want to sell, or get divorced, or go bankrupt?? That will get messy. IMO you're better off getting legal advice now and ensuring that your property remains protected... I'd personally go for separate ownership.
Thats what we are trying to acheive, so that one couple soley owns 50% of the land and the other couple owns the other 50%. Then it doesn't matter what 'they' do and vice-versa. But this will slightly change the ownership, which was 25% each of the one block.
Will that actually be the case though, or will each individual still own 25% of each block created? Isn't this where a deed of partition would need to come in?
You are correct. Each individual will own 25% of each block created. You will need legal advice and tax advice on the implications of rearranging the ownership so that one couple owns one block 100% and the other couple owns the other block 100%. @Paul@PFI has already identified there are stamp duty and GST issues to consider and potentially capital gains tax.
Yes, I made that point in my first post. @JetstreamVic wants independent control of 50% of the current land-holding, so that they're not tangled up in the other couple's finances. That means either 100% ownership of a new lot by one couple, or 100% controlling rights to a defined portion of the current lot. Different setup, same effective outcome. Still needs proper legal advice That's probably one way to do it. I'm not a lawyer, or a tax expert though..
This is what I want to happen, you have articulated it better than I have haha. This is where I am wondering if there are any issues.
Personal tax and legal advice is needed. Potential issues are stamp duty and GST potentially capital gains tax depending on how the transfers are done. From my understanding there is more than one way to do this and there will be different implications for each way. That's why personal tax and legal advice is needed.
