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Tax on PPR Subdivision

Discussion in 'Accounting & Tax' started by Evergreen, 24th Jul, 2016.

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  1. Evergreen

    Evergreen New Member

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    Hi,

    I am looking for some information on taxation for a subdivision of a PPR for the following 2 situations. I know I could hold onto the subdivision/new house and rent out, but am just looking at this from a subdivide/sell standpoint and how the taxation would work. And I am not looking to compare the 2 situations, just how the taxation would work for each.

    Situation 1

    If I am living in the house as PPR, and I subdivide to build behind while living in the house at the front, how is the tax worked out when I sell the house at the back? Do I get a valuation on the land when it is subdivided, and then add the construction cost to work out the investment cost for the profit calculation, or do we do the valuation for tax calculation when the build is finished (on the value of the house/land).

    Situation 2

    If I am living on the property, then I knock down the house and build 2 torrens title duplexes. I would need to live somewhere else during construction but may be able to use the 6 year rule on PPR to keep it as PPR during construction (not sure on this). Then there are two titles once the construction is finished. How does the tax calculation work and valuation for that calculation if I sell both?

    Thanks
    James
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. No main residence exemption
    Pure income tax with no cgt discount apportion cost of land
    Gst on sale
    May be able to use margin scheme

    2. Cg event triggered when move out
    No 6 year rule without a house
    But may be able to use 4 year rule to keep 1 as main residence but jot if you plan to sell
    Gst on both
     
    legallyblonde likes this.
  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Technically you cannot sell a subdivided PPOR as described. Its just land. You cannot use the 6 year rule until you build the duplex, occupy it and move out. It may harm you too since the main residence exemption may not even apply in some cases and the sale may not even be a CGT matter.

    My developer toolkit explores many of these and related issues and even the GST.

    It endeavours to explain why advice is important
     

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  4. Evergreen

    Evergreen New Member

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    Hi,

    Apologies for the delayed reply and thankyou to both for your feedback.

    Regards
    James
     
  5. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    What you want to do is quite complex. Make sure you get some good advice before you begin or you may end up paying more tax than you otherwise need to.
     
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  6. Evergreen

    Evergreen New Member

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    Thanks for the advice. Will do.

    Do you know how the GST is calculated when selling? Especially in the case of duplexes.

    And it looks like when knocking down and building duplexes, there is no difference whether the previous house was PPR or not, especially if planning to only sell or rent out when finished? What are your thoughts on that.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes there is a difference when contructing. Depending on circumstances the 4 year may apply.

    Think construction means new property and new property is subject to gst on first sale.
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Depends if you keep good records :rolleyes:
    And if you are able to and choose the margin scheme