GST on subdivisions

Hello all,

Got a bit of a pickle with good old GST if I was to subdivide off a rear block of an IP and sell it off.

High level goes like this:

I'm looking to buy an existing dwelling on a piece of land, subdivide it, sell the house and the newly made vacant block. I intend to buy it in a Coy structure (and not live in it). DW about the structuring part, only focused on GST.

I am told that the front house does not have GST applicable to any profit made because its an existing dwelling (or words to that effect).

I am told that the rear vacant block will have GST applicable (expected to sell for about $300k).

The formula I am told to use is that the vacant land needs an apportioned amount of value assigned from the initial purchase. So say the initial purchase was $600k, and I resell the front house for $500k.

Then you could say the rear block was 'bought' for about $100k (plus minus some of the sub costs).

Then selling for $300k, the GST would be 1/11 x ($300k-100k).

Anyone had to go through it before and have a rule of thumb?

Really eating into the profit margins, hence why I'm getting specific. I did message Terry W to see his response, be great to hear from anyone else.

Thanks

Stannis

 

no tax expert but would love to see @Terry_w response here if not covered before

 

hi, i'm no tax expert either but i would've thought the GST would apply to the $300k as you probably wouldn't have paid any GST in the initial purchase and therefore can't claim any GST to reduce the GST payable

 

Too many variables to answer, but your formular is wrong - who told you to work it out that way?

See GST and the margin scheme | Australian Taxation Office

 

Agree with Terry thats no way to calculate the cost for margin scheme. I would consider a valuer is required to apportion the historical CGT costbase between the two elements of land. There is a tax strategy in this process which could save some tax BUT it comes with a cashflow issue.

Selling off the old house first may assist with cashflow.