Hi all, just a quick question on CGT after sub-dividing. We bought a splitter block in Brisbane a few years ago and just trying to work out a few numbers. If we bought 20 Brisbane Street for 600k, we then knocked down the house a created 20 and 20a Brisbane Street. Assume each block is valued at 400k. We then decided to sell 20 Brisbane St and keep 20a Brisbane St. Is it as simple as 20 Brisbane was bought for 600k and then sold for 400k so no CGT would have to be paid....? How does the ATO treat these scenarios? Thanks again.
You would need to demonstrate a 'reasonable' approach. That might be more like you bought block for $600K, divided in half and sold one half for $400K. Half of $600K=$300K; so the profit/gain on #20 is $100K.
You have sold part of your asset and you will make a gain on the sale of that part of the asset (based on your loose numbers). The gain may or may not enjoy the 50% cgt discount depending on lots of things. You might have to pay gst on sale. Lots of things.... the no tax option is possible but not probable.
When land is split you really need a valuer to assist to determine the apportionment of the original costs so each new block takes on a share of the original costs. Or the land may become trading stock and the valuer would need to determine its market value at that time as well. This is need for more than just the obvious tax issues. There can be strategies but they arent obvious. There are many issues of complexity and a tax plan is well advised so that tax is minimised and also to avoid serious errors which will add to costs incl tax. It will also be needed for the GST issue and perhaps for the margin scheme issue too. Demo of the former house may mean that CGT isnt an issue. Its a bit like a declaration that you are developing land and reselling it. Hard to argue otherwise. Ordinary income and tax consequences plus GST on the sale.
No. Assuming CGT applies, which it may not, you need to work out the cost base of each block and then apply this to the gains. This would need to be done by apportioning the expenses between the 2 blocks.
