Tax query on subdivided PPOR

Hi All,

First time poster here. Over the past year or so I've enjoyed reading some of the tax tips throughout this forum and have found them very helpful.

I'm hoping someone may be able to clear up something a work mate and I were discussing last week.

Scenario:

I purchase a new PPOR with the intention knocking down the existing dwelling subdividing the land and building a new dwelling on block A while leaving block B vacant. I then intend on living in the residence for at least 12 months which I then decide to sell.

I then pursue to build a new dwelling on block B and once complete I also intend to live in that dwelling until I either decide to either lease out or sell in another 12 months time. Let's say I decide to sell.

I would be interested to know at what point do I incur any tax if any at all.

Thank you.

 

The sale of Block B will likely incur capital gains tax on the sale for the period it was not your home (you only get the main residence exemption once - so if you get Block A you don’t double dip on B).

Likely to pay land tax but will vary depending on the state you live in.

 

Hi Ross,

Thanks for the reply.

So it'll be CGT on the land component only given the dwelling on B is my new PPOR?

 

I'm not an accountant, speak to one.

You may also like to read this: Your main residence

1. Your intent is to 'develop' as this is why you purchased the property. Intention is a big part of tax law. The ATO has this to say about an enterprising intention, "you've not run a business from it, rented it out or flipped it."
2. Common misconception is that you need to live in a PPOR for 12 months (due to the CGT discount). This is two separate issues, a PPOR can be considered CGT exempt if genuinely used it as your PPOR for a short period of time.
3. Two subdivided lots from one parent will almost certainly be considered two separate assets. To be considered for the full CGT exemption the ATO has this to say, "has been the home of you, your partner and other dependants for the whole period you've owned it." Once split, I would consider there is an argument to suggest you're only living in block A and B is a standalone asset.

Tax law is complex, and I would have almost certainly said something that could be incorrect. For this reason, you should ALWAYS seek guidance from a professional.

 

you will have a capital gains tax liability

might also need to consider the 4 year construction rule to Property A

 

Yes it will result in tax

 

No

 

Sale of new residential premises - GST.
Possibly no CGT issue if its ordinary income. More relevant to B than A, perhaps. Depends how.
Read TD 92/135 also - This demonstrate that the ordinary income matter can invalidate a main residence concession. Carefully note the comment : tax ordinary profits or business income. You dont need to have a business to be caught by this. The profit making intent relating to A and B are joined and easily argued to be a profit making intention and a enterprise.

 

Thanks all.

It appears this is a minefield and why people can lose money from redevelopment. Even a few differing opinions just in here. My accountant will probably give me another version too.

Apart from an accountants advice are there any good resources (books/courses) that will aide in understanding the tax side of property redevelopment? I'd like to be able to look at a property and try to gauge it's underlying value when it comes to redevelopment and any tax implications that can arise from it.

 

I don't think there was any differing opinions here

 

Same same but different.

 

Btw I have written about this in my tax tips linked in my signature.

There are no books covering this but are a few specialist articles out there.

 

Our developer toolkit may assist explain the underlying concepts. Bear in mind asking for a book is kinda like asking your surgeon if there is a book so you can do your own surgery. All her experience, years of study and the tools and techniques they have developed are more important than the technical aspects found in a text book.