PPOR CGT exemption when selling but paying out JV

Hello all, here is a little chestnut for you..

I have found a great spot to build a house and make a profit. Here’s the plan: I don’t have enough cash so my friend has offered to go halves with me. Basically we need 200k cash to do the deal, so he will give me 100k. I am wondering if I can buy the land and build in my name, then live in it for 3 months so as to claim the PPOR CGT exemption. Then I will sell the house, pay no tax, and then repay my friend his 100k plus half of the profit that I made. Is this a legitimate way of doing things or will I run afoul of the tax man? Interested in hearing all your thoughts... thank you

 

sounds like revenue to me rather than capital gains so no main residence exemption. Your friend would be taxed on his income too.

 

TD 92/135. Not a CGT asset. No main residence. A profit making intention. As Terry alludes to its possible double taxation could also apply. As its new construction GST also applies. (I assume a new construction not a basic reno)

 

Bummer! They certainly get their share. Let’s say we were to do 3 of the same sort of deal, one every 6 months. Would we then be classed as a business and pay full company tax?

 

only if you were a company.

 

There are three types of property sales

1. Capital gain
2. Business income ie not a CGT issue. repetitive in nature etc.
3. Isolated profit making - neither a CGT issue or a business issue includes "one off" profit making etc

The use of a company concerns ownership of property perhaps. You are confusing a entity with what it does to make income. I doubt the matter is a business tax issue as it seems more like a isolated profit making issue. These are fundamentals of tax law long long before CGT was bought it. CGT is a "modern" tax. Income tax is way older.

and... "you" cant be a company. thats like saying I can be my sister. They are different persons.

 

Thanks Paul, appreciate the explanation. You said you doubt the matter is a business tax issue as it seems more like an isolated profit making issue - so does that mean that any profit just gets treated as income?
What would it take for it to be classed more as a business tax issue - would it be doing multiple developments at once, or doing one every six months, or once a year etc - is the main criteria just that they are repetitive and similar? Appreciate your time and expertise!

 

"business tax issue" is no a phrase that is used

see

Tax Tip 92: Property as Trading Stock Tax Tip 92: Property as Trading Stock

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

Tax Tip 157: Difference on being taxed Capital v Revenue Account Tax Tip 157: Difference on being taxed Capital v Revenue Account

Tax Tip 334: The Main Residence Exemption Doesn’t Apply to Property held on Revenue Account Tax Tip 334: The Main Residence Exemption Doesn’t Apply to Property held on Revenue Account

 

Pretty much void Main residence exemption when your intention is to make a profit.

 

I explained the three different ways property sales arise. Isolated profit making and business sales are similiar as they are both "ordinary income". The busienss will also have a different timing issue as sales are based on settled sales not contracted. Isolated profit making is a contrat date base sale. Busins income may also be eleigible for small busienss concessions eg offsetsetc

Until someone advises a sale is a business sale then assume its isolated profit making. Seek personal tax advice as a normal function of commencing and operating a business if you are unsure. Its not normally wise for a developer doing multiple devs to blend them togther either.