To subdivide or not

Discussion in 'Accounting & Tax' started by Keentolearn77, 11th Oct, 2019.

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  1. Keentolearn77

    Keentolearn77 Well-Known Member

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    Scenario:

    Development of 4 townhouses nearing completion to be held and rented long term.

    Looking to complete subdivision paperwork / titles etc in the nearish future which would trigger open space levy, 4 x council rates notices, 4 x land tax notices

    Q. Having 5 years grace to lodge the subdivision, do i sit tight and save a little or
    do the sro / council increase charges of rates / land tax on the property with multiple townhouses regardless that subdivision has not been completed....
     
    Keentolearn77, 11th Oct, 2019
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  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I would seek personal tax advice. And also legal / town planner advice on strata issues since bypassing subdivision may mean a registered scheme needs to be implemented.

    Issue : Why would you need to subdivide the land if all 4 are intended to be held and rented long term? Subdivision merely permits individual lot sale. You need to consider this question as part of MT 2006/1 and identify "what is your enterprise?" and what was the intention on this development?

    Was it an enterprise to construct investment property held on capital account or a revenue (profit making) ? Subdivision required under law may not impact this but a choice to subdivide may hamper a later assertion that the property is a CGT asset.
     
    Paul@PAS, 11th Oct, 2019
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  3. Terry_w

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

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    one advantage is for lending.
    You can then take each unit to a different lender. This can reduce risk and the valuations will probably be higher so there can be LVR improvements which could potentially allow for further borrowings.
     
    Terry_w, 11th Oct, 2019
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  4. Marg4000

    Marg4000 Well-Known Member

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    Councils change rules and what is allowed today may not be permitted next year. Separate titles would enable the townhouses to be sold separately and far more easily than a block that cannot be separated.

    Also, fees can change dramatically, and rarely in your favour.

    Suggest you do it now.

    And yes, I know many say they will “never sell”, but life has a funny way of interfering with the best-laid plans. Always keep possible resale in mind. Get into a tight spot? Sell one townhouse. Excellent Plan B.
     
    Marg4000, 11th Oct, 2019
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  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    And the valuations may be higher for a single lot x 4 than a single val in a row ?

    I have also found a refinance at end of project can trigger deductibility of high borrowing expenses that may be under commercial finance.
     
    Paul@PAS, 11th Oct, 2019
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  6. Hamish Blair

    Hamish Blair Well-Known Member

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    Banks will apply a discount “in one line” for un subdivided lot.
    So subdivision will increase LVR.
     
    Hamish Blair, 11th Oct, 2019
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  7. wylie

    wylie Moderator Staff Member

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    This is advice we received. We don't want to end up having to sell four townhouses in one tax year if the rules are changed, so we will be getting separate titles as soon as we can.
     
    wylie, 11th Oct, 2019
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  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    And four QS reports NOT one. For tax purposes I would just reports Units 1-4 as a single property.

    On the land tax issue some states allow a concession to not impose a sudden jump in land tax. WA I believe is more generous in that aspect. But its for one year
     
    Paul@PAS, 11th Oct, 2019
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