Hi all,
Can someone please set me straight on capital gains tax situation on subdividing.
Friends purchased 1/2 acre some 25 years ago and built a home on it to live in. They now are thinking of subdividing the back 1/4 acre, connecting it to sewer and selling it whilst retaining the front 1/4 with house and continue to living there.
Do they need to have a valuation done on the 1/4 acre section to be sold. Will there be capital gains tax on the 1/4 acre they wish to sell. The original purchase price (25 years ago for the full 1/2 acre) as you can imagine was substantially less than what the selling price will be for the 1/4 acre section.
Are there any pitfalls to consider ie should they sell 1/4 acre within say 1 year of subdivision to perhaps eliminate capital gains tax altogether?
Hope some one with experience or knowledge regarding this can enlighten me so I can pass on the information to my friends. Any comments will be welcome
Thanking you
A couple of things to consider: the property has been owned prior to the introduction of CGT and would generally have been cgt exempt. I believe that if they sold the whole of the property it would have the exemption, eg sold to a trust to realise the whole of the profit/cgt. If it is sold with the approval then they can realise the entire capital gain without attracting cgt. The trust can go through the motions of subdividing and having a nil profit (if this is desireable). Your friends could then rent their house from the trust (like any neg geared property).
A val on the portion to be sold shouldn't be required as it is to be sold at market (ie what ever price market pays).
AS for your plan, selling the remaining 1/4 acre would not attract cgt if it is their ppor.
check out the pdfs on http://www.bantacs.com.au
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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