Hi Experts,
I have an investment in block of land in South Eastern Suburb of Melbourne. I have purchased that block of land last year in September at around 175K. When I purchased a block of land, it was not title cleared. I just paid 10% deposit (17.5K) and purchased that block. Title will release in March this year.
I review the price of last land release in same estate. Currently developer is selling around same size of block in 202K.
So I was thinking to sell that block and gain a profit before borrowing loan from Bank in March, when land title will be clear.
What I want to understand is, lets say I sell my block in 195K, a price difference i will get is 20K.
Do I have to pay Capital Gain Tax (CGT) on 20K?
What happen if I invest that 20K in another property before end of financial year, still I have to pay CGT on 20K?
How can we avoid CGT? Is there any clue anyone have …
Regards,
KanChi
Firstly, the conventional way that you can avoid paying CGT is to have it as your PPOR – a bit hard when it is land only. If the date between signing the contract of sale to the next contract of sale is less than 12 months, then there is no discount for any capital gain – you might have to wait until September if you want to get a discount on the tax payable.
You can invest the CG as you like until you submit and recieve your 2007/8 tax return at which point you will have to pay.
Just out of interest, what do you mean by 'title was not cleared'? Is it a new subdivision awaiting land titles office issuing new title documents on the land or adverse possession under OST?
As a last point, you can avoid paying CGT on this purchase, go out and buy $20k of dud shares, sell them at a loss and carry the loss forward until you can offset it against the capital gain. (Not a good strategy unless you need to offload the shares eg if you bought Centro/Allco etc at their peak).
Thank for your quick response…
Scott No Mates wrote:Just out of interest, what do you mean by 'title was not cleared'? Is it a new subdivision awaiting land titles office issuing new title documents on the land or adverse possession under OST?Yes! it is a new subdivision in The Chase estate in Berwick.
Scott No Mates wrote:Firstly, the conventional way that you can avoid paying CGT is to have it as your PPOR – a bit hard when it is land only.Sorry, can you tell me what is PPOR. It is a new term for me.
Scott No Mates wrote:You can invest the CG as you like until you submit and recieve your 2007/8 tax return at which point you will have to pay.What I want to understand is, if I purchase another block of land / property and invest that 20K in another block of land / property, do I still have to pay CGT on 20K?
KanChi
Principal Place of Residence ie the house that you live in and claim an exemption from CGT
Ultimately you will have to report the CGT and pay the tax when you get your tax assessment from the ATO, until that time you can do whatever you like with the money as long as you can access funds to pay the tax when it falls due.
If i Sell my block of land in year 2007-08 then only I have to pay CGT for year 2007-08? or even I dont sell my land and keep it for another year say till year 2009, still I have to pay CGT for year 2007-08?
If you sell in 08/09 then you pay in 09/10 (after you lodge your return). If the contract is dated before 1 july 08, you will pay this year.
CGT is levied on the total capital gain so from when you purchased until date of sale contracts, so yes if you sell in 09 you will pay for 2007-2009.
Thanks for your help … I think it is very clear now …
But I am wonder, if ATO ask for tax all the time when we gain from property, how come investor earn money.
I am planning to start investing. I purchased this block to build my own home but at this moment I am getting really good money out of it so I was thinking what happen if I sell it. I was trying to figure it out how things work if I want to be real estate investor.
Hi Kanchi
Don't sell the land! Why don't you build something on it first? If you sell, you lose half of what you make (dependent on your tax bracket) straight away which would be a waste. You could go to the bank and ask for a construction loan, build on the land and pay for the full thing at the end. Usually, after you build the property is worth a good deal more than what you paid in total. If you can then afford, rent the house out. If not, sell then. You will have to pay capital gains though.
Hope this helps.
Lucky.
lucky88 wrote:Hi KanchiDon't sell the land! Why don't you build something on it first? If you sell, you lose half of what you make (dependent on your tax bracket) straight away which would be a waste. You could go to the bank and ask for a construction loan, build on the land and pay for the full thing at the end. Usually, after you build the property is worth a good deal more than what you paid in total. If you can then afford, rent the house out. If not, sell then. You will have to pay capital gains though.
Hope this helps.
Lucky.
Yes lucky,
I am new investor. I dont have much idea about it.
Have you done this before?
Do you have any idea how much you can get if you sell it after building home on it? and if you sell it just as a land?Which way is better?
Kanchi,
From my experience the hassle of building something is well worth it. Not knowing your area I couldn't tell you how much you would make… the best way to find out is to look at other houses in your area and see how much new ones are going for. Then visit some project builders and get some quotes to build something similar to what is selling on your block.. You will soon be able to tell how much you could make!
CGT is worked out from the date you entered the buy contract rather than from the date of settlement and from the date you entered into a sell contract.
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