I've heard a few conflicting stories and thought I'd ask here before I speak to another accountant (I've already spoken to a couple) A friend has a PPOR and is looking to subdivide the backyard creating a new plot of land in which he will build his new PPOR. Option 1: Build his new dwelling and subdivide the land, sell existing dwelling (PPOR). He believes this doesn't trigger a CGT event and can also sell his new PPOR (on newly created lot) at any time also without creating a CGT event. Option 2: subdivide land, sell existing dwelling (PPOR), believes this won't trigger CGT event. Then use the proceeds of the sale of PPOR to build his new PPOR on the newly created lot. This wouldn't create a CGT event, however when/if he eventually sells the new PPOR there will be some tax payable on the land which he originally subdivided. Is this correct? I hope that all makes sense. I've told him he needs to get specific tax advice but after hearing conflicting answers he's a little lost. Thanks
option 1 will be a CGT event, the question is will the main residence exemption apply? It might apply to lot 1 in full but impossible to tell based on the info. If cannot apply to lot 2 in full as that land was not his main residence until him moved in, perhaps the 4 year rule can apply in part. option 2. same - CGT event triggered Both options seem the same to my cursory reading
Thanks @Terry_w That was my understanding too, there was a thought that Option 1 both new existing dwelling and new dwelling may be CGT exempt as they would move from the existing dwelling to the new dwelling as soon as it was subdivided so there be no period where the newly created land wasn't deemed PPOR. I know many examples of where people have built a new dwelling and subdivided then sold existing dwelling and have paid zero CGT however I know that doesn't mean it's the correct way to do things
Generally, they will only be able to claim one property as their main residence even if the land is subdivided. The main residence exemption can only apply to one dwelling and if they have chosen the first duplex as their main residence from the original ownership time. They should only apply the main residence exemption to the second duplex from the time they occupied it. Section 118-192 will not apply to the second property for the same reasons above. For the second duplex, they will need to apportion the gain based on the time owned since purchase and the time actually occupied as their main residence.
