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Duplex Tax implications

Discussion in 'Accounting & Tax' started by Gaby, 1st Oct, 2015.

  1. Gaby

    Gaby Member

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    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 = ???
     
  2. BennEznElle

    BennEznElle Well-Known Member

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    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.
     
  3. Gaby

    Gaby Member

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    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))
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I've already written a tax tip on this, but haven't posted yet - will soon.
     
  5. Gaby

    Gaby Member

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    Oh awesome Terry thanks! Will look forward to reading it :)
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  7. Gaby

    Gaby Member

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    Yeah that is more around the main residence exemption
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    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
     
    Perthguy likes this.
  10. Perthguy

    Perthguy Well-Known Member

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    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.
     
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  11. Handyandy

    Handyandy Well-Known Member

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    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
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Handyandy likes this.