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Subdivision of Land - Capital Gain or Ordinary Income

Discussion in 'Accounting & Tax' started by wood88, 9th Oct, 2016.

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  1. wood88

    wood88 New Member

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    9th Oct, 2016
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    Hi,

    I have been reading these forums and the ATO website and trying to figure out if my subdivision is a capital gain or Ordinary income.

    I purchased the vacant land to do a one off subdivision (provided I was able to get approval, the land wasn't zoned to be able to be subdivided). Otherwise I was going to build and rent out.

    One property was sold within 12 months of obtaining the land the other will be sold after 12 months.

    The property was subdivided into 2 lots at approx 370sqm each.

    Initially I thought it would be a capital gain, but the further I read into it I'm thinking more likely to be ordinary income.

    I have read into the possibility of GST but believe this doesn't apply as it's a once off occurrence.

    Anyway advice would be great.

    Cheers
     
    Last edited: 9th Oct, 2016
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Get some specific advice.
    Might be revenue account
     
  3. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    If the plan was always to develop then its likely to be profits ie ordinary income and CGT discounts not apply
     
  4. wood88

    wood88 New Member

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    Ok, thanks guys.
    Think I better see a property accountant.
    Any recommendations? (Preferably in the Perth Area)
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Is this a trick question ?? Surprised nobody beat me.

    Subdivisions dont come with a tax concern in most instances. Subdivision is not a CGT event. Its what you do with the subdivided property that determines if CGT, tax and GST apply. If you bought to keep and then keep them all its very different to selling.

    Personal advice would be a good idea. Usually before starting such a project. Tax will be a large chunck of profit so good planning includes tax. There can be ways to reduce it. Also good planning involves record keeping that addresses costs, GST and apportioning which also affect taxes.

    Highly improbable that CGT applies in the OP example. Intentions when buying land will be key. Fact you couldnt build is just bad planning. Hard to see a mere realisation after you intended but failed in a profit making venture.

    I see a GST problem too. Hope you sold under the margin scheme.High chance of arguing that supply wasnt made in course of an enterprise at the time of sale.
     
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  6. Rob G

    Rob G Well-Known Member

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    A single transaction can be an enterprise, MT2006/1
     
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