IP to PPOR, or develop instead?

Hi all,

My Father in Law has a small house(on a big block) with development potential on the Fraser coast (Hervey Bay). He has never lived in the house, it has always been a IP (Brought 2002 for $290,000) and he has had one PPOR in that time which he had from approx 2007-2014. The IP is now worth around $420k, he still has the original loan amount of $230K, with it fully offset at the moment, so he can access the funds when ever he wants. Its currently rented, for around $350 a week, which suited while he travelled around Australia for a few years. He currently lives in a renovated bus, that is parked on a friends lot, and has a better fit-out than my house!

Now he is back on the coast, working full time, and will probably work for another 5 years, he is 62 and is at a little crossroad in what to do next. Options I can think of so far, with out getting too complicated:

1. Move into the IP and make it his PPOR with the aim to sell it, but I wasn't sure whether he would still have to pay CGT on the previous 15 years that it was rented?

2. Develop the land, could probably get 3 townhouses on it, but he wouldn't be able to afford to do it by himself, but my wife (daughter) and I would be able to help fund and partner on the development, and while I haven't done a full Feaso, it looks very profitable, but would have to consider CGT again?

3. Buy the IP property off him, as a Trust, develop the land and then distribute from there??

4. He could buy another IP, Shares ect, but he would rather try and do something with the IP he has already. His super is pretty good.

5. Do nothing, but the $350 a week is counted as income pushing him up into the $80k - $120k range.

To be honest he is not ready to settle into another PPOR house at this stage, his work is contract based (not great for serviceability though), which gives him the freedom to spend time with us and the rest of the family on the Gold coast, and his current living arrangements make this easy too.

Its a good property to develop, and am leaning towards option 3, but very open to what everyone thinks?

 

1. Yes cgt would be payable

2. Needs to consider whether the development will be on capital or revenue account. Could be both with a deemed disposal

3. Worth considering but will trigger both cgt for him and stamp duty for the trust

 

If you are planning to JV with him there are issues to address with a solicitor and likely in a revised will to ensure if he dies that you arent adversely affected. JV documentation should safeguard your interests (loan or share of equity) from them passing to his estate and being shared with other relatives.

 

Thanks, I thought that would be the case with CGT.

Capital or Revenue account? I am not sure what you mean? As its in his name, it would have to be capital?

And yes, also didnt consider Stamps at purchase too.

 

Very good point! Thanks

 

Tax Tip 143: The sale of a property – Capital or Revenue account? Tax Tip 143: The sale of a property – Capital or Revenue account?