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GST on subdivisions

Discussion in 'Accounting & Tax' started by Stannis, 30th Apr, 2016.

  1. Stannis

    Stannis Member

    Joined:
    31st Mar, 2016
    Posts:
    15
    Location:
    Perth
    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
     
  2. samiam

    samiam Well-Known Member

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    5th Sep, 2015
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    on my way
    no tax expert but would love to see @Terry_w response here if not covered before
     
  3. Meteor

    Meteor Member

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    13th Feb, 2016
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    5
    Location:
    Melbourne
    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
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    18th Jun, 2015
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    2,358
    Location:
    Sydney
    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.