FHOG - Substantially Renovated Home - CGT/IncomeTax/GST

Hopefully the PC brains trust are able to shed some light onto this.

Have a friend/client who has recently kicked out his tenant and completely renovated his IP. This is an extensive renovation, talking walls down, new floors, walls, ceiling, kitchen, bathroom, veranda, garage, carport, landscaping - everything.

He's looking to sell the property for a cheaper price to his cousin, say 80% of the value of the property (independent/bank valuer) so cousin doesn't have to pay mortgage insurance.

It was discussed that could potentially be eligible for FHOG - as the property is Substantially Renovated Home
First Home Owner Grant - RevenueSA
Definition of FHOG Terms - RevenueSA

Nobody would have lived in the property post renovations, once they're completed the cousin would be looking to buy the property straight away.

My understanding is that would have to pay stamp duty etc on the full purchase price, no issues there.

But RevenueSA stated that the builder - vendor would have to show evidence that it's a new property. Anyone have an idea of best way to go about this.

Would there also be a GST / Income Tax issue based on revenue. Property was previously rented out >12months.

Hope this makes sense.

 

I looked into this for my first purchase.

Substantial renovations need to affect the property as a whole. Cosmetic renovations don't count.

The link below to the gst act has some examples of what constitutes significant renovations.

view.htm?docid=GST/GSTR20033

It also needs to be a taxable supple. I.e the vendor registered for gst.

Revenue SA wanted a list of works undertaken including the costs to make a decision. I purchased from housing trust and needed to sign a freedom of information act and pay fees so i gave up as it was over 12 months post purchase so most likely would have been knocked back regardless of eligibility.

 

You would have to look at the FHOG Act for SA and find the definition of new property and see if it qualfies.

GST could apply if it is new property and this includes property that is substantially renovated.

CGT would be assessed at market value.

 

I also would have a concern that CGT will NOT apply to the sale. The renovation wasnt undertaken for anything other than to produce profit. As the sale is non-arms length and not a CGT asset then a arms length pricing rule applies to determine profit akin to the CGT market value substitution rule There is no three month occupation following completion of renovations by the owner and no rental by a tenant afterwards so that the reason for the reno is solely confined to enhancing the property value for its sale. Hence profit on sale is the purpose - so no CGT.

SA rules appear to exclude substantial renovations. They look at the issue of "new llocal planning permission" from what I see. An existing permission for occupancy seems to exist for the site and thus its a substantial reno. So no FHOG.

I dont believe that for GST purposes that the property is the kind that attracts the term "new residential premises". But it may. The "substantially all" view is contained in GSTR 2003/3 para 53-83 and discusses replacement of substantially all the building. Frames, flooring, plumbing, wiring, roof etc are included. I suspect it wont meet that test and para 77/78 may apply. So no GST on sale.