Hi All, I have noticed many times a new build will spring up and within 6m to a year later a for sale sign pops up. hence my question. Is this a bona fide strategy for climbing the property ladder . Build , decorate and landscape to sell. Make profit tax free. Repeat using profit for a slightly more expensive property . Rinse repeat until you get your dream home? if this strategy has already been discussed , sorry for the duplication , I couldn’t find anything using search. If that’s not the strategy what are these people doing it for ? Thanks in advance for any thoughts.
New build in a new estate? Unless it's a rising market that's unlikely to work. You'll have many competing properties, many of which will be newer than yours. I don't think that's why you're seeing For Sale signs.
Not in new estates just in suburbs, commonly old house knock downs , often subdivided and sold individually, then new builds come in, or on single blocks. Time after time for sale within 6-18 months.?
Yep, got a few clients that employ that strategy. One needs to be prepared for a hold hiatus if the market slows or product tastes change ta rolf
Op is basically talking just build for profit right. Sure, it's a strategy, but not sure it will be tax free. Though if you could consistently build and sell at a profit, might as well do it as a business, not just as a way to build a ppor deposit.
I presume because the owner is claiming it as their PPoR? Eg buy a property an inner circle property in a capital city with a knock down. Live there for 6-12 months for stamp duty savings, get DA and organise builder, knock down and replace the building, sell for profit. Rent or stay with family during the knockdown,rebuild,sale. No idea if there are tax issues with this but see it a lot in my area...
main residence exemption is only available if on capital account. buying building and selling would be on revenue account and would be taxed as ordinary income - no 50% CGT discount either. You might be able to fly under the radar of the ATO for a while, but it might not
Yes, this makes sense. I suspect there's a lot of under the radar going on. I guess you could defend it if you did it once but multiple times becomes less defensible. Same for renovation / extentions if you were a repeat offender every couple of years?
new build in estates I assume?? Just have to be careful about the timing of this. Building house and land works well when market is strong
I suppose my questions also includes : in general “ are the sum of the parts generally worth more than the individual components “ once built and landscaped? What sort of profit % might one expect after building then selling a few years later to upgrade.? If you did this every two years, for example whilst you live in the new build you start another build and once complete sell the previous house. Is this not still your PPOR for tax purposes. Surely there is no limit on how often a person can build snd sell and move house ? I have a colleague who has moved 10-15 times. Every couple of years is their typical situation.
Try getting a private binding ruling if you think that the case. It depends on the circumstances, but if you are doing this to generate income it would be taxable on the first house potentially. There is a TD or TR by the ATO on this - can't remember the number.
TD 92/135 Income tax: capital gains: is the main residence exemption relevant when the proceeds of sale of a dwelling are treated as income under ordinary concepts? https://www.ato.gov.au/law/view/document?docid=TXD/TD92135/NAT/ATO/00001
Some people don't want to build, and prefer to buy as is. Though remember it costs you to build including interest costs. Yes, this can be profitable in a rising market or you can do it cheaply. But how long is a piece of string? In WA in the last 10 years, profits would be pretty thin.
Thanks Terry, understand a builder might run into complications. Surely though anyone who is not a builder whom buys a house expects to sell it for a profit at some point in time in the future. There is no minimum time period of residence to classify as PPOR as far as I know? so how does one distinguish between selling for profit and selling in general to upgrade ? which millions do every year? Assuming of course you make a profit or you wouldn’t do it to upgrade . This seems like a grey area? I seem to recall years ago “2years “ was banded around as minimum residency time for PPOR definition, but have since read there is no time period defined by ATO to recognise a house as PPOR.
How long is a piece of string? When I was building land and house packages at least 20% profit. However the risk is could be in the middle of a build and the market turns south. I prefer to develop and build at least 3/4 units/townhouses as more money in this and more options ie sell 2, keep 2. i also prefer to build in areas where there is limited land, reduces risk of oversupply Caveat, numbers must stack up
Might be worth actually creating the profits first before worrying too much about the tax implications for something like this. If you are paying market price for land and retail price to build, youd have to get lucky on the market movements to really see profits that cover buying and selling costs.
It all depends on whether capital or revenue account. Never been a 2 year minimum residency for a main residence (not referred to as PPOR)
Whom decides capital or revenue account ? Accountant ? In tax return ? As an individual family home would this not default to capital account? If running a “development business” like Material Girl mentions would this then default to revenue account? thanks
the circumstances would mean it would be one or the other - or perhaps both. The Australian system is self assessment so you decide, and the ato can audit to check. development is income.
