I am doing a feasibility study on my next venture, which is to buy a block of land (with one or more titles) in partnership with a mate (via a unit trust), and then build one or two PPORs simultaneously. If we do 2 PPORs, then we would eventually claim one each as PPORs.
I was attracted to this idea on the assumption that all our labour would be realized in the sale price, and not subject to tax. I understand that it is ok to do this sort of thing 2 or 3 times over 10 years, but if you do it regularly, the ATO can argue you are making a business of it, and tax accordingly.
Any opinions appreciated.
Bruce
Mooloolaba, QldBruce, I’m thinking that the first problem you’re encountering is that you are buying in a unit trust, and therefore cannot claim a PPOR on that basis as the trust will own the land, and therefore the buildings.
Cheers
MelPoint taken Mel. Will drop the unit trust idea and buy it in joint names.
Bruce
Mooloolaba, Qldone way is to buy a place with a house on it already. you move into it for now (your PPOR).
Then you subdivde the land and build a new place. at the same time, you renovate the current PPOR.
When everything is finsihed, you sell the PPOR and move into the place you’ve just built.
No CGT on either, no GST.
Jas
Why do companies offer you “free gifts?” Since when has a gift NOT been free?Bruce, definitely ask your accountant, cos buying in joint names would suggest that only one can be claimed as a PPOR, rather than one each.
these are my thoughts, and I’m not an accountant, so I’d definitely be asking all the questions – in fact, the question I’d ask my accountant is ‘How can I do this to acheive what I want?’
Cheers
MelBruce,
You need to read TD92/148 on the ATO web site if it doesn’t appear readable below;
TD 92/148
FOI status: may be released
Taxation DeterminationIncome tax: capital gains: is there a disposal and an acquisition where joint owners of a block of land subdivide that land into two smaller blocks with each owning one block?
This Determination, to the extent that it is capable of being a ‘public ruling’ in terms of Part IVAAA of the Taxation Administration Act 1953, is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, the Determination applies to transactions entered into both before and after its date of issue.
1. Upon initial acquisition and before the subdivision» of the land by the former joint owners, each acquired a 50% individual interest in the whole land.
2. After the «subdivision», both owners have a 50% interest in each of the subdivided blocks. As there has been no change in ownership of the subdivided land, there is no acquisition or disposal for CGT purposes (see CGT Determination No. 7).
3. However, as a result of the transaction whereby each now has sole ownership of an individual block, each owner is taken to have disposed of his or her 50% interest in the subdivided block which is now owned by the other. There have been corresponding acquisitions by each owner from the other of that interest in land now owned by each of them which was previously owned by the other.
Note: If the original land had been acquired pre-CGT, there would be no disposals subject to CGT . However, in respect of each subdivided block, each individual owner would now hold a 50% pre-CGT interest and a 50% post-CGT interest.
Example:
A and B were joint owners of a one hectare block of land acquired in 1986. In 1992, they subdivide the land. A took a one-half hectare block ( block 1) and B took the other one-half hectare block (block 2). A acquired a 50% interest in land constituted by block 1 in 1986 and acquired the remaining 50% interest from B in 1992. Similarly, B acquired a 50% interest in the land constituted by block 2 in 1986 and acquired the remaining 50% interest from A in 1992.
A and B have each disposed of their 50% interest in that land constituted by blocks 2 and 1 respectively, in 1992.
Commissioner of Taxation
27/8/92
ATO references:
NO CGT Cell
FOI number: I 1213189ISSN 1038 – 3158
Related Rulings/Determinations:
TD 7Subject References:
CGT;
«subdivision;
acquisition and disposal of interest in landLegislative References:
ITAA 160MLookup
You must be logged in to reply to this topic. If you don't have an account, you can register here.
