Tax implications of subdividing PPOR

Hi all,

I'm planning on purchasing a new property, demolishing, subdividing and building 2 units. It will be my PPOR up until I've completed planning and it's demolished, so assume about 6-9 months. I have some (possibly dumb) questions that I've not been able to find the answers to (yes, I'll speak to an accountant but would like to get as much information as possible before making a formal appointment):

1. On completion, if i sell both units, will I have to pay CGT on both or only on one?
2. If both, can I live in one, declare it as my PPOR and then sell it so that it's CGT exempt? If so, how long do I have to live it in before it can be CGT exempt?
3. For the 2nd (IP) unit, in order to get the 50% CGT discount, do I have to retain it for 12 months after build completes, or 12 months minus the 6-9 months it took to complete planning?
4. Would I have to pay GST on the sale of the IP?

Thanks!

 

1, probably income tax on both
2. Prob not
3. CGT won't apply likely as this appears to be revenue account.
4. yes on both

 

What if it was his PPOR already, and had live there for some time? We all have to live somewhere!

And subsequently, having moved back into one of the new dwellings as his PPOR, he decides to sell the other so as to reduce debt and overall level of risk in these uncertain times?

 

Then it is different. There is the capital v revenue aspect. If on revenue account the main residence exemption cannot apply even if living in the property.

Keep in mind a property could go from capital to revenue account too.

Specific advice needed.

I have written some tips about these issues in the legal and tax sections.

 

thanks Terry - I have bookmarked your tips and strategies and been reading through them. This scenario was a little close to home if you will pardon the pun. We knocked down our old weatherboard after living in it for a few years and built 3 townhouses. Now back living in one, rented another and sold the third.

 

When land commences to be held as trading stock a CGT event occurs and the taxpayer can choose original cost or market value. If they choose cost it means no CGT exemption. Market value can trigger the exemption and reset the costbase. There are issues associated with both. Also likely a formal valuation will be needed if you want to save on the GST and use the margin scheme when selling.

It would be very difficult to access the main residence exemption on the new build. If you lived in the property for a extended period of time - ie 5, 6 or even more years then its more likely to be seen as a main residence. Its a grey area and time heals those wounds. If you think selling after 3-12 or even 24 months is OK I would disagree. TD 1992/135 imposes a view that blending a home and a profit making intents means the new build can be considered part of the profit making and then its not a exempt asset since its not held on capital account.


The developer toolkit assists to explain some of the tax concepts. Personal advice would advised.