Selling house and land with DA or land with DA??

Discussion in 'Accounting & Tax' started by Apprentice, 25th Aug, 2018.

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  1. Apprentice

    Apprentice Active Member

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    Hi all,

    Have an IP which has been used for rental for 8 years. Managed to get a DA for 2 townhouses.

    Have got a costing from a builder and costs are high. Seems best that I sell the land with the DA without building, as value seems to be in the land.

    Just wondering which route to take

    1. Demolish the house and sell with DA, so all ready for the developer. A relative can do this fairly cheaply for me and should make more on the sale. Any GST payable if sold this way.

    2. Sell with house and DA .

    What sort of taxes would I be up for?


    Thanks
     
  2. Marg4000

    Marg4000 Well-Known Member

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    2.
    If the house is in reasonable condition and rentable, it may be better to leave it. A buyer could then claim deductions to help defray holding costs before developing.
    Marg
     
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  3. Apprentice

    Apprentice Active Member

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    Hi Marg, house is in very poor condition. Previous tenants wrecked it. No landlord insurance. House is a hazard. My preference is to knock it down because I can have this done for next to nothing by a cousin. Hopefully, with a DA and cleared land, that should bring a better sale. But not sure if this will impact tax which is payable, GST ???
     
  4. Terry_w

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

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    Selling land without a house could mean GST may need to be charged on the sale - depending on the situation. It is also more work.

    More likely CGT will apply with a house on it too.
     
  5. Apprentice

    Apprentice Active Member

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    Would CGT apply with the land without the house?
     
  6. Terry_w

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

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    Depends on the circumstances. Could be CGT or just taxable or both. More likely to be CGT on what you have described but seek tax advice.
     
  7. Apprentice

    Apprentice Active Member

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    Thanks, Shall do.
     
  8. Mike A

    Mike A Well-Known Member

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    I would be looking at selling with the DA only and not doing ANYTHING further. You could easily tip the transaction from CGT to revenue account.

    Denolishing may or may not lead to turning it from cgt and revenue account. Then deal with the interaction between the two to avoid double taxation. If you do demolish get a private ruling arguing you did so only to maximise the return on the mere realisation of your capital asset. Got a strong case to argue such and then gives certainty and potentially a higher sales price.
     
  9. Apprentice

    Apprentice Active Member

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    Thanks Mike. And if demolishing turns it to a revenue account, and I sell, would that mean that I would lose any capital gains benefit for that period that I held it and it was used as a rental??
     
  10. Mike A

    Mike A Well-Known Member

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    If it is deemed a profit making scheme you work out net profit under s 6-5 as revenue

    Then section 118-20 reduces capital gain by revenur amount so not double taxed

    If land is entered into for a profit making scheme after it was purchased (sounds like you didnt initially intend for it to be a profit making scheme but i dont have all the facts) then the markrt value of land at the time it was committed to being a profit making scheme can be taken into account to calculate net profit.

    Question but is it a profit from a profit making scheme at some point in time or mere realisation of a capital asset for the whole time. Your adviser can determine that
     
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  11. Apprentice

    Apprentice Active Member

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  12. Apprentice

    Apprentice Active Member

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    Hi Mike, will definitely get advice. Is my understanding correct? House has only ever been rented.
    Worst case scenario, house is demolished and it is considered a profit making scheme. Then the market value of land at the time house what demolished is used to calculate net profit. Ok, so if I sell for more than market value, I pay tax on the difference between the market value and selling price, as well as the CGT. If I sell at market value only CGT will be payable.
    If the house is not demolished, then I pay CGT on the selling price obtained and no other tax.

    So with demolishing of the house, market value of the house is needed?? Not needed if house is left there?
     
  13. Paul@PAS

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

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    1. New ATO draft position on development activities is not so straight fwd. Applying for a DA may be one of several efforts undertaken as an isolated profit making activity.
    2. Enterprise ?
    3. Sale of land (assume a demo occurs) is subject to GST ? New residential Premises includes vacant resi land.

    ATO position in this new paper seems to accept that a changed use can occur and in some cases it can harm prior intentions or there may be multiple intentions. All the facts must be considered together and not in isolation

    eg "we will also consider whether the landowner has done something at a later point in time to venture the property into a business or profit making undertaking, such as engaging architects, surveyors or real estate agents"...A council DA would be in same boat IMO...And this comment falls under the heading about land held as a CGT asset for a considerable period.

    Other comments :
    Para 29...whether he investment purpose included an exist strategy that involved profitable resale by development";
    Para 30..."we will consider enquiry or applications to council...even if the property was rented out for a period of time"
     
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