Hi, I know there have been several tax comments and tips on minimising tax implications when renting one and living in one etc... But I am interested in the tax implications of selling both duplex's straight after construction; Example scenario: Land cost: $1,000,000 Construction: $800,000 Sale price @ $1.2m each: $2,400,000 Gross profit: $600,000 For simplicity please ignore selling costs, stamp duty and legals. Now does this mean GST will be charged on the sale price i.e. $240,000 and can claim GST credits of construction $80,000 so total GST payable on both is $160,000. Also with regards to CGT does the 50% discount apply as the land was held for more than one year. I have read that the land value portion is entitled to the discount but the duplex building itself is taxed at the full CGT rate? It seems as though most of the profit will be chewed up in tax! i.e. Gross profit = $600,000 GST = $160,000 CGT = ???
No CGT, just taxed as ordinary income as you have a profit making intention. Depending on the ownership entity, it may be better to stagger the sales across financial years to minimise the end tax rate.
So you're saying on a 600k profit there would be 160k in GST and then the remaining (600-160) will be taxed at approx 50% assuming top tax bracket. Therefore after tax profit = 220k (600 - 160 - (50% of profit after GST))
https://propertychat.com.au/communi...-subdividing-land-and-building-2-houses.4364/ Not exactly your scenario though.
If your situation does not involve a main residence then, assuming it is on capital account, the 50% discount will apply to the whole lot if the land has been held more than a year. GST would generally be charged on the sale price with input tax credits for costs incurred.
Common mistakes in this scenario - Not claiming GST on the build costs - Not being registered for GST until a date too late when it then bites harder - Not selling using the margin scheme - Thinking CGT applies - Failing to maintain diligent records on costs so that profit is over estimated hence more tax. All of the above can make a difference of up to 20% to profit and either destroy profit or add to it. And getting any wrong would lead to penalties and interest. Its a high audit risk area
This is what my brother-in-law did. Didn't get advice before purchase, made all the mistakes above, ended up making a loss. He is still paying off loans from a development he did over 5 years ago due to the mistakes above. People really need to get advice on this even before they purchase the land to develop.
Back on SS there have been discussions re structure for a JV developing a Duplex with the intent that both parties to the JV want to own one of the completed units. I can't locate the posts so wondering if anybody can remember the type of structure that was nominated to ensure the minimum tax and/or stamp duty to achieve final individual ownership. Cheers
see Legal Tip 77: Joint Purchasers of Land and deeds of partition https://propertychat.com.au/communi...urchasers-of-land-and-deeds-of-partition.3888
