Dual Occupancy Development - CGT / Stamp Duty Questions

Discussion in 'Accounting & Tax' started by Philip L, 24th May, 2019.

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  1. Philip L

    Philip L New Member

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    Hi All,

    I have a few tax questions about a new dual occupancy development.

    Scenario –
    The owner currently owns the property outright (before 1985) and wants to develop into a dual occupancy, then transfer one side each to his two kids (Say A and B)

    Stamp Duty
    - I believe this will require the both A and B to pay stamp duty on their side of the new properties
    - Is there any way to reduce the stamp duty? Transfer before building possible?

    Capital Gains Tax
    - I am also assuming the owner would need to be pay CGT on the transfers. So, would it be best for the owner to keep both sides for 1 year for discount?
    - Can the owner avoid CGT on one side if they use that side for their main residence (MRE) before transfer?
    - Is the CGT calculation only on the value/construction of the building?
    (i.e. minus the valuation of the land) Your main residence

    From my limited knowledge I believe the best way is for the owner to build the dual occ, live in one side(A) and rent out the other side(B) for 1 year. Then transfer side(B) to one of his children. Hold side (A) then transfer in the next financial year. Please comment if this is incorrect or there is a better way to reduce tax implications?

    Thanks in advance for any help.

    Cheers,

    Phil.
     
    Philip L, 24th May, 2019
    #1
  2. Terry_w

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

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    you don't state what state the land is in.

    CGT could be exempt, but it depends.

    You last comment on living on one and hten the other wouldn't result in CGT exemption being applied to the second, it is loses its preCGT exemption.
     
    Terry_w, 24th May, 2019
    #2
  3. Philip L

    Philip L New Member

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    In NSW. So would CGT exemption apply to any of the sides?

    Thanks.
     
    Philip L, 24th May, 2019
    #3
  4. Terry_w

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

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    I think it will be difficult to do without stamp duty while the owner is still alive.

    But it could potentially be done without CGT, it depends a few things and you should seek out specific legal advice.
     
    Terry_w, 24th May, 2019
    #4
  5. Philip L

    Philip L New Member

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    Yes, will be seeking legal / tax advice soon.
    Thanks Terry, Appreciate the help.
     
    Philip L, 24th May, 2019
    #5
    Terry_w likes this.
  6. Paul@PAS

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

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    The existing land may be a pre-CGT asset but the changed use of the land may render it subject to tax and even CGT !!! The new building doesnt attach itself and become a pre-CGT asset in any event. BUT the changed use and wonership "may" be exempt but if the build was a isolated profit making venture it could lose the CGT exemption and even be subject to GST.

    Transfer of the land prior to building may reduce the duty BUT likely as a single title. A deed of partition may be needed.

    I would be seeking tax advice from a property savvy adviser and then a lawyer
     
    Paul@PAS, 24th May, 2019
    #6