Hi,
I've got a block with a house on it that is exempt from CGT because I've lived in it and it's my PPOR. If I were to knock it down and build two townhouses and sell them, would they be exempt from CGT? If not, is that because they weren't lived in by me? What if I were live in one of them and sell them off shortly afterwards, would that one be exempt? I know it would generally be better to sell them off the plan to limit the interest on the loan, but I'm a bit unclear on CGT when it comes to multiple dwellings built on the land of a former PPOR.Anyone have experience in this scenario, as the majority would be built on blocks purchased purely for investment, and most the forum CGT discsussion seems to be on a single dwelling. As the two townhouses would be seen as an improvement to the original asset, I'm guess the sale of both would be subject to CGT?
But would it be any less because I lived in the original house that was on the block?
You may need to check into this but I would suggest get the development approvals etc to maximise the value of the property, then get the place valued by a valuer (instructions that the building is to be valued as a development site with DA/CC in place) – this will maximise your cgt free portion (ppor). Then transfer the property to a new entity (trust/single or multi director pty ltd company) at a price reflecting the development site at the assessed value.
Undertake the development in the name of the new entity who will then pay tax on the profit (if the MOA of the company allow property development) then if you 'work' for the company add your costs to the development costs to minimise profits on sale.
Scott No Mates wrote:You may need to check into this but I would suggest get the development approvals etc to maximise the value of the property, then get the place valued by a valuer (instructions that the building is to be valued as a development site with DA/CC in place) – this will maximise your cgt free portion (ppor). Then transfer the property to a new entity (trust/single or multi director pty ltd company) at a price reflecting the development site at the assessed value.So get the approvals before getting the place valued as it is as that should yield the highest value? And when getting valued, get it valued as a development site to maximise the value of the PPOR? I ask as, my fear is that the property (and suburb) has reached its peak for the next couple years. Like many other suburbs in Melb, it's median appeared to drop from Sep to Nov 2007 (effect of rate rise?). Check Domain v Home Price guide's median prices to see what I mean. But I guess the valuing part for this purpose can't be done without the permits being in place which would result in its highest possible value? You may then ask, why do the project? But if I'm right in my prediction of median property/suburb values, at least I know I have two years to time and roughly actually commence building. But I would only start in a favourable point in the market, which I guess would be the time to get the valuation done for its highest value anyhow? But I guess your point is that the key is getting it valued as a development site as that really maximises the value. What kind of entity should I get for the valuation?
Scott No Mates wrote:Undertake the development in the name of the new entity who will then pay tax on the profit (if the MOA of the company allow property development) then if you 'work' for the company add your costs to the development costs to minimise profits on sale.Would have to really trust the directors of the company as well when it comes to what they do with the profit too ey?!
To answer your last question first – use a single director company eg yourself or spouse/parent.
Property valuation should be provided by a registered valuer – member of Australian Property Institute MAPI (VAL) & registered with Dept of Fair Trading/VCAT etc, a real estate agent is not generally qualified to provided a valuation (only a market appraisal/opinion).
If a townhouse development isn't the h&bu, why do it? Yes, get it valued as a townhouse site with DA in place. the DA should be valid for 5 years from date of approval (may vary state by state). If it is still (& always was) your ppor then you won't pay CGT as you haven't undertaken the works/subdivision etc..
The development from whoa to go will take well over a year by the time you develop a brief, design, DA, tender, construction, subdivision etc unless you have a background in town planning, design, construction, land surveying, property & control of the elements/political climate. This is plenty of time for the market to bottom out, move on or reinvent itself.
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