Hi Gurus,
I am trying to get my head around the amount of tax we will be required to pay if we were to subdivide a block of land. The land would be purchased using a discretionary trust with a corporate trustee. The land will be purchased under the margin scheme and we would be registered for GST.
Purchase price $632.5k (inclues GST $57.5k)
Acquisition costs $50k (roughly)
Development costs $650k
Holding costs $100k
Any GST paid from the purchase and during the development will be reimbursed along the way.Hypothetically we sell all the blocks of land for hopefully $2.0 mil.
We will have loaned the trust $140k during the process and intend on paying ourselves back about $70k of this.What tax do we have to pay?
GST? 1/11 of the profit?
CGT? No discount I assume?
We will probably not distribute any income but rather retain it to purchase future opportunities so I assume we will pay a further 30%?
Am I missing something here?So I guess the question is do we have to pay 3 different taxes and if so how is it calculated?
Any assistance will be greatly appreciated.
Thanks,
Gus
Hi Gus,
So I get $1,432,000 as a cost base, and $2,000,000 sale proceeds gives you a $568,000 capital gain.
Firstly Capital Gains Tax (CGT) is the tax paid on any Net Capital Gain made on an asset that is sold. In your case the gain will form part of the income the Trust has generated for the year. At the end of the financial year the trustee will need to distribute all income to the beneficiaries, so it really depends on each family members situation.
Each person will then declare a capital gain from the Trust in their personal income tax returns, receive the 50% discount if held for 12 months, then pay tax at their marginal tax rate (see below)
Tax rates 2006 – 07
0 – $6000 = Nil
6001 – 25000 = 16.5c
25001 – 75000 = 31.5c
75001 – 150000 = 41.5c
150000+ = 46.5cCGT is not a separate tax but forms part of your income tax payable.
Given the large profit I would strongly suggest you talk with your Accountant before proceeding any further.
AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”
Hi Amanda,
Thankyou for the info.
I thought that assets sold by trusts did not attract the 50% CGT discount but I cannot recall where I read that.
I am still confused about the GST and also whether the trustee can retain income and how that is taxed.
I have approached our accountant but we are waiting for a response.
Cheers,
Gus
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