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Duplex build, margin scheme and cost base.

Discussion in 'Accounting & Tax' started by shorty, 23rd Oct, 2015.

  1. shorty

    shorty Well-Known Member

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    Scenario:

    Land with established home purchased in 2010 for $500k. Loan of $400k. Lived in as PPOR until 2015.

    Demolished in 2015 and a duplex constructed on land. Cost to build is $800k including plans, permits, subdivision, and construction.

    Both townhouses in the duplex are identical and occupy the same amount of land.

    One townhouse is retained as PPOR, one is sold.

    GST applies to the sale as it is a new dwelling, using the margin scheme.

    Question: what can be added to the cost base?

    Some or all of these?

    50% of:
    1. original purchase price
    2. pre construction interest
    3. during-construction and post-construction interest
    4. original conveyancing fees
    5. Original stamp duty
    6. scrap value of demolished house
    7. construction costs
    8. planning and design costs
    9. Real estate agents fees


    Anything else?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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  3. shorty

    shorty Well-Known Member

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    Somewhat, but I'm interested in what makes up the cost base
     
  4. shorty

    shorty Well-Known Member

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    I could have added to the existing thread, but I didn't want to be too off topic, and I'm sure other people would be interested in what makes up the cost base when weighing up whether to sell, or hold and rent.
     
  5. Rob G

    Rob G Well-Known Member

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    CGT cost base:

    Merely because blocks are equal size does not necessarily mean 50%. e.g. one may be on the street front and one hidden inconveniently at the back.

    Apportionment must be reasonable, which often means using market value. See TD 97/3.

    Item 6: 'Scrap value of demolished house' should not be there. It is double counting.

    You will have included the cost of the demolished house in whole package purchase price. It becomes part of the cost base of the land. Its demolition costs will also form part of the land cost base.

    PS:

    Any capital gain is disregarded to the extent that the profits are assessed as income from a development business, land speculation or a profit making scheme etc.
     
    Perthguy likes this.
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    And real estate costs would only apply to the one being sold.
     
  7. shorty

    shorty Well-Known Member

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    Thanks Rob and Terry. I just used 50% to keep the concept simple.

    So I'm right in assuming that everything (aside from the scrap value double dipping) can be included in the cost base?

    Does the fact that it's been lived in as a PPOR change anything?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes
    Not really

    Interest on loans used to acquire the property will come under the 3 element of s110-25, but it is only interest on loans used to acquire the property. e.g. if you borrowed against the property to acquire a car, invest in ostrich farming, or had a LOC (with money in an out) then the interest wouldn't apply.
     
  9. shorty

    shorty Well-Known Member

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    Thanks Terry.


    Rob, could you explain this a bit more? I.e. What you mean about the capital gain being disregarded.
     
  10. Rob G

    Rob G Well-Known Member

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    If, for some unfortunate reason not disclosed in your post, you happen to be assessed under another income tax provision then CGT will not apply.

    No double tax, s.118-20.
     
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    For one duplex you may be able to choose a higher cost base than actual cost. When land becomes trading stock (eg for sale as a dev) a taxpayer may choose either cost or market value giving two different tax outcomes. Of course this can impact on CGT and/or ordinary income. There also may be a timing difference spanning two tax periods.

    Given the margin scheme and other cost base apportioning issue a reg valuer may be needed to assist determine the reasonable apportioning of original cost and also the value of the two lots. Identical lots almost never have identical value.
     
  12. shorty

    shorty Well-Known Member

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    Thanks all. Time to seek professional advice, methinks.