All Topics / Value Adding / Building Assets and reducing tax liabilities

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  • Profile photo of budding investor_2budding investor_2
    Participant
    @budding-investor_2
    Join Date: 2004
    Post Count: 3
    November 15, 2005 - 6:29 am

    Hi all,
    I have found a duplex site with a schedule on one of the blocks to build multi-unit to the rear on one of the blocks. In effect this will give me three properties to sell at the end.

    If I sell the 2 duplex properties and keep the multi-unit property it will virtually absorb all of the profit in this deal. The multi-unit will then have a very large amount of equity that I will be able borrow against to go again with.

    My concern is that the ATO will value each duplex property independently and tax me on the 2 properties I have sold at a perceived profit?

    Does anyone know if this is correct?

    Thanks,
    Bill

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    November 15, 2005 - 7:26 am

    Bill

    The ATO will work out the square metreage area of the block then apportion a value to each block. If one side of the duplex is more important than the other then you could argue the increased value of this area.

    The land value as apportioned will become your cost base when calculating out your GST under the margin scheme. As each stage progresses you will make any input credit claims for the costs of the construction and then on the sale price be responsible for paying GST on the margin. (The difference between the sale price and the land component.

    You in turn will calculate your profit and calculate your CGT or Trading profit. You will only pay Tax if you sell the property.

    Any property you retain will be not be taxed.

    Cheers Richard
    Ph: 07 3720 1888
    [email protected]
    http://www.yourstatefinance.com

    Specialising in US & IP finance.

    Richard Taylor | Australia's leading private lender

    Profile photo of budding investor_2budding investor_2
    Participant
    @budding-investor_2
    Join Date: 2004
    Post Count: 3
    November 16, 2005 - 5:33 am

    Thanks Richard,
    Thanks so much for your info. I will speak to my accountant about this soon. It does seem to help going into these meetings knowing as much as you can.

    Just so I get this right. The profit will be attributed to each property individually based on sale price minus land size, construction and other associated costs?

    This being the case, can I load up accounting, architectural, legals, mortgage holding costs and other non specific expenses onto the two properties that I sell?

    Would this increase the total taxable income and ultimately give me a higher cash return even if it is in the form of equity?

    Any further thoughts?

    Thanks, Bill

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