All Topics / Legal & Accounting / Subdivision CGT on Profits

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  • Profile photo of eageag
    Member
    @eag
    Join Date: 2004
    Post Count: 6
    February 17, 2005 - 1:05 am

    Hi all,

    I am thinking about buying a property with an existing house on it, in Brisbane, and subdividing and selling off the back block – the one without a house on it. I would keep the smaller block with house. However, wondering if you can help me understand how CGT applies. I’ve read all the posts on CGT and the ATO tax guide for renters, and I can’t seem to find the answer.

    Details as follows:
    Price of land and house $350,000
    Size of initial lot 1,012m
    Estimated value of land only $250,000 (minus house)
    Size of new subdivided lot 500m
    Sale price of 500m block say $180,000

    Specific questions I have are:
    ·How is the cost value of the land calculated when you buy a house on a big block? By land valuer?
    ·Also, can a portion of the acquisition costs be added to the cost base in CGT calculation? If so, how do they decide how to apportion the acquisition costs to the block-only sale?
    ·Can the costs of subdivision (say $30K) be subtracted from the profit or added back to the cost base to reduce the CGT payable.
    ·Is it possible to reduce CGT obligation by 50% by holding for one year?

    I would appreciate any feedback. I will eventually go and see a tax accountant but would like a better understanding before I do.

    Look forward to hearing from you.

    Liz

    Profile photo of VanadiumVanadium
    Member
    @vanadium
    Join Date: 2005
    Post Count: 5
    February 17, 2005 - 1:42 pm

    I think you need to see this web page on the ATO site.

    http://www.ato.gov.au/individuals/content.asp?doc=/content/43486.htm&page=7&pc=001/002/026/004&mnu=5060&mfp=001&st=&cy=1

    Profile photo of eageag
    Member
    @eag
    Join Date: 2004
    Post Count: 6
    February 18, 2005 - 4:45 am

    Thanks for this! I’m sure the guide will help. I note that indeed there is a chapter on subdivision, so I’ve got some reading for this weekend.

    Profile photo of coastymikecoastymike
    Participant
    @coastymike
    Join Date: 2005
    Post Count: 125
    February 19, 2005 - 12:10 am

    Ead,

    You firstly need to determine whether the profit on sale of the property development will be classified as income under Section 6-5 of the Income Tax Assessment or the mere realisation of an asset and therefore assessable under the Capital Gains Tax legislation.

    This is the first question you need to answer before determining the treatment for tax purposes. Determining this is based on case law and your particular circumstances. Suggest you consult with a tax advisor before entering into the transaction or realising your profits.

Viewing 4 posts - 1 through 4 (of 4 total)

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