Subdivision Query

Discussion in 'Development' started by Laney, 27th Apr, 2020.

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  1. Laney

    Laney Member

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    27th Apr, 2020
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    Sydney
    I'm looking into the feasibility of doing my first subdivision project in NSW. How do you calculate the GST and CGT payable?

    High-level scenario:
    - Purchase price $950k
    - Sell rear lot for $550k within 12-months of purchase date.
    - Retain front lot & the 5BDR house on it as an investment property. Rents for $640 p/wk.
    - Use profit from land sale to pay down mortgage on front property so that it's positively geared.

    Thanks for any advice and help.
     
  2. Lindsay_W

    Lindsay_W Well-Known Member

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    Question for you - do you have any non-deductible debt? Owner Occupied home loan for example?
    If so, I would say paying down the investment debt is not the best strategy
    If not - do you intend to at any point in the future?
    *not advice, suggest you seek your own tax advice*
     
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  3. Terry_w

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

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    GST is generally 1/11th of the sale price but may be less if the margin scheme used.
    No CGT generally on this as it appears to be on revenue account. Income added to other income and taxed on that.
     
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  4. Laney

    Laney Member

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    Thanks Terry.
    What's the margin scheme?

    To confirm, is this the high-level profit potential:
    > $550k rear lot sale price minus costs ($100k subdivision cost & $60,500 GST) = profit $389,500
    > then minus income tax of 37% if profits are distributed to beneficiaries of trust (or individuals if trust is not used). Approx $144,115.
    > Leaves profit of $245,385
     
  5. Terry_w

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

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    You might be able to pay GST on just the margin of profit component rather than the sale price.

    Your figures don't include any cost for the purchase of the property.
     
  6. Carol M

    Carol M Well-Known Member

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    Newcastle NSW
    Do factor in a longer time frame, and budget appropriate holding costs for this. Sub-division process and finding a buyer could both drag time scale out beyond a year. Depends on council and sale depends on market supply and demand in changing times.