Hi, I have a doozy of a question. It’s very complicated and I just can’t get my head around the answer. We have been approved to build a Commercial space in a Strata Plan. The Strata is a 1960’s building and run down and the owners have come up with an idea to renovate the building (in excess of $2m-$3m). One owner suggested to approach Council about further enhancing the location and Council gave them the go ahead for building a new Commercial space. This space is literally made up from air. I know it’s hard to imagine but they are creating a new floor to accommodate a large commercial space and it’s been DA approved. The space will be sold and the money will be used for all the alterations and repairs to the building.
Does anyone know what will be the Capital Gains Tax implications for the Strata in selling off this new commercial space?
So the body corporate is selling off part of the common property? Assuming CGT applies – which it may not – then the usual principles would apply. Work out the cost base and the gain minis the cost base is the taxable income. It would be a company so no 50% discount. Would any profits be passed on to the owners?
Strata titling in itself is not a CGT event, it is when it is sold that tax will be triggered.
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
Great question @blackhotel
Even though the units may have changed ownership since inception the common property is owned by the owners of the strata plan not by individuals. Specialist tax and legal advice should be sought as there will need to be a new SP lodged which will be subject to cgt at some time in the future should any furthwr subdivision of common property be achieved.
Terry W — Yes, the profits will be distributed to all owners for all the other repairs needed. So does the BC pay the tax, then distribute the funds to owners. Or does the BC distribute the funds to owners then each individual owner pay there own taxes?
Scott —– Yes we are going to seek specialist advice and from what we have been advised so far is that we should seek a special ruling from the ATO regarding the matter.
Each would pay tax
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
Each would pay tax
How would you determine the cost base? (especially if most of the units had changed hands several times). I would lean on the presumption that the CP had been established at day 1 of the subdivision and has not changed ownership though the members of the body corporate may have changed (possibly more than 100%).
To work out the cost base we need to know the costs for the 5 elements described under Section 110-25 of the ITAA 1997 which are:
1. Money paid or required to be paid for the asset.
2. Incidental costs of acquiring the asset, or costs in relation to the CGT event, for example, stamp duty, legal fees, tax advice, and so on.
3. Non capital costs you incur in connection with your ownership, for example, interest, rates, land tax, repairs and insurance premiums (provided not previously claimed). Included are any expenses incurred while the property was an owner occupied property.
4. Capital expenditure you incur to increase the value of the asset, if the expenditure is reflected in the state or nature of the asset at the time of the CGT event.
5. Capital expenditure you incur to preserve or defend your title rights to the asset.
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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