How is CGT calculated on subdivided lots

Discussion in 'Accounting & Tax' started by theperthurbanist, 5th Jul, 2020.

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  1. theperthurbanist

    theperthurbanist Well-Known Member

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    Hi tax gurus, I think this is a pretty simple question but couldn’t find any previous posts addressing it exactly:

    I’m undertaking a retain and build subdivision and will be transferring the ownership of the new vacant lot (CGT event). I am wondering how the original values are calculated for these lots for the purposes of calculating CGT.

    The original lot is a standard dwelling on a 588sqm lot; two new lots will be the 245sqm vacant lot and 343sqm retained dwelling lot.

    I’m assuming when calculating the original value of the vacant lot the presence of a dwelling on the original lot (and lack of this on the new lot) means a simple ‘share of land area’ (245/588 = 42%) times the original value ($445k), wouldn’t apply? Or would it?
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    #notanaccountant

    The $445 included the house yes? So the 42% is a share of the land value not a share of the total value. So if the house is worth maybe $175k then the base land value might be $270k then 42% of that which is $113.4k?

    Again - that's how my brain thinks it works. My brain logic and ATO logic aren't always in agreeance :p
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Apportion on a reasonable basis
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    For apportionment of land the ATO generally not accept area unless you have a reasonable basis to use area. A CGT event occurs and as you may lack the skills and data to reliably apportion original costs etc a valuer may need to be involved. In some very very simple situations that land could be apportioned on M2 BUT if the land is not identically homogenous this is not really recomended. Matters that affect homogenous land values can include title issues such as easements, common use land (driveway) and front v rear lots.

    The matter also may not be a CGT event and could even be subject to GST. Just becuase its your main residence at the time of transfer doesnt automatically mean its a CGT asset. As a tax adviser I would be asking many questions before I would conclude its a CGT event.
     
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  5. theperthurbanist

    theperthurbanist Well-Known Member

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    Another thing I hadn’t considered is the additional elements of the cost base of the property (purchase costs, development costs), which lessens the impact of the CG somewhat.
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Background reading. Normally better to get the tax plan sorted before starting. Many people assume subdividing = profit when it can cost them
     

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  7. theperthurbanist

    theperthurbanist Well-Known Member

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    Thanks @Paul@PFI ; agreed. This is actually for an unforeseen scenario I’m considering now to (possibly) capitalise off the Fed Government grant. I’ll check out the guide.
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The Commonwealth Govt arent paying any grants. Home Builder will be paid by each state (except QLD who arent in yet) and those laws havent been drafted. Lot of ifs. The Commonweath funds each state. The duty to transfer ownership v the grant and legals makes no sense. Its as much value as flybuys points.

    I would have a concern that there is an enterprise. Nobody says it has to have commercial outcomes - Just an enterprise. And then GST on the land could negate any benefit