Hi,
Not sure if anyone can help with this technical scenario but will try anyway.
I am about to purchase an existing house on a subdividable block I intend living in it for about 6 months. Hypothetically if I then demolish the house and build a new one as well as building a new house on the back of the block (without creating two new titles at this stage) and then live in the front one for say 3 months as my PPOR then subdivide the blocks – selling the front and moving into the back would there be any CGT payable?. During the construction phase I would just be renting so the houses on the one title would be my PPOR.
Any ideas?? I thought it was an interesting scenario.
In short.. you wouldnt pay CGT on the sale of the front house. But if you ever sell the back house (which you finally move into) there will be CGT payable.. although I’m a little unclear on exactly which period of time it would be payable on.. either from original purchase until you move in, or from demolition of the original house, until you move in. probably the latter…
The reason why you cannot claim the PPOR exemption on both is because the assets will end up being sold seperately…
CCH master tax guide 2010:
The main residence exemption does not apply to a CGT event that happens in relation to adjacent land or a garage, storeroom or other structure if that CGT event does not also happen in relation to the dwelling upon which the exemption relies (s 118-165). For example, land under a unit of accommodation will not benefit from the main residence exemption if the taxpayer sells that unit of accommodation separately from the land (Taxation Determination TD 1999/73). Similarly, where a vacant block of land is sold following the intentional demolition of a dwelling which was the owner’s main residence, this rule applies to deny the taxpayer a main residence exemption (ID 2003/248).Also.. if you did not demolish the existing house, and simply lived in it whilst building the other house, then you’d have a 6 month ‘overlap’ period on which you can claim the CGT exemption on both.
http://www.ato.gov.au/individuals/content.asp?doc=/content/00191831.htm&page=81#P2751_286865Hi
We are in a similar position want to develop a property in eastern suburbs Sydney under company title but need a good tax accountant with property expertise preferably in the east.
We would love any reccomendations.
Thanks
E
So due to the fact we are demolishing and building that will impact our CGT rather than if we lived in the existing house subdivided the block and sold the front house within 6 months and then built on the back block and moved into that?
I guess it makes it more attractive to do up the front house within 6 months subdivide and sell it then build on the back block to get the dual CGT exemption.
If you demolished the front house and built new then subdivided and retained the back block I guess you would also have to pay CGT when you finally sold the house on the back block too.
Zeus75 wrote:If you demolished the front house and built new then subdivided and retained the back block I guess you would also have to pay CGT when you finally sold the house on the back block too.Well… not necessarily. provided you werent claiming the main residence exemption (MRE) anywhere else, then you’d be able to claim the exemption on the entire property up to the point at which you subdivide (providing a < 4 year demolition & construction time). Then.. after subdivision you could claim the MRE on both blocks for that overlap period of 6 months. As long as you sell within 6 months of subdivision there'd be no CGT. You wouldnt necessarily have to have the new house finished at that point.. but you would have to start building and subsequently move in, as soon as practically possible (< 4 years from date of subdivision).
That way you’d end up selling the first house CGT free, and (so far) there would be no period of ownership of the new subdivided block & house subject to CGT.
Clear as mud? As you can see, minor differences in this scenario can have ramifications for CGT.
The basic rules you have to work with:
-you can only claim the MRE on two houses simultaneously for a maximum period of 6 months.
-you can claim the MRE during demo / construction for up to 4 years, but can only claim the MRE simultaneously on another property for the afore mentioned 6 months during that period.
-the MRE does not cover items which will eventually be sold seperately to your PPOR.This might be interesting:
http://www.ato.gov.au/individuals/content.asp?doc=/content/36907.htmHope that helps!
Thanks Mr5o1,
So the way I see to proceed to be CGT exempt would be demo the front house and build a new one. Then subdivide and within 6 months sell the front whilst retaining the back block. I can then within 4 years build on the back block and use the back block as my PPOR. When building the first house the PPOR is the house on the full block as I have not done any subdivision. The dual PPOR only takes effect when I subdivide and as long as I am not constructing another building or owning both for a period of greater than 6 months I will be CGT exempt on both.
Sorry in advance if I have this wrong but does that seem correct? This is quite a confusing area.
yep thats right.. the one thing you didnt mention was that you have to live in the new house for 3 months before you sell it.
so:
A: original existing house
B: first house you build before subdivision
C: second house you build after subdivisionbuy > live in A > demolish A > build B > live in B > subdivide > start building C > sell B > live in C
at face value that would work..
but of course, there’s a number of potential issues which you need speak to an accountant about (do your activities constitute a business? … GST? … > 5 acres?) and.. you could make creative (and beneficial) use of the “home first used to produce income” rule – but thats a bit long winded to explain here.
oh.. and I gave you the wrong link before… this page is particularly relevant:
http://www.ato.gov.au/individuals/content.asp?doc=/content/00191831.htm&page=84&H84
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