Hi there
I think this question has probably been asked and answered several times on this forum but I have done a search and can't find what I am looking for.
If you subdivide your own PPOR, what are the CGT implications. I assume that the block with the house on it would still be CGT exempt but any subdivided blocks would be subject to CGT. If that is the case, how is the CGT calculated? Is it based on the difference between market value of the vacant block at the time of subdivision and the sale price? Or is it based on some other calculation?
Thanks
K
Hi K
Have a look at the PDF booklets on http://www.bantacs.com.au . There is one where this question is answered, but I can't remember the answer atm.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Any subdivided blocks would be subject to CGT, as the main residence exemption only applies to dwellings. As there would be no house on the vacant block, you would be up for CGT when you sold.
Up until the subdivision, the whole block was exempt, so the CGT cost base is the market value of the land at the time of subdivision.
Hi, can't you sell PPOR and move into the new house? After 5 years, you don't have to pay GST nor CGT. Can be quite substantial because GST is at least $13000. Your old house will not have GST.
Meanwhile, you have time to look around and pick the house of your dreams and probably pay less than normal because you're not pushed by time constraints.
KY
hello all,
just wanting to clarify a point
if you purchase a PPOR and happen to subdivide it, the sale of the new block has CGT with it. Yes?
But what if you live in the house, subdivide, sell the house you live in ( CGT exempt) whilst building on the new block. which will become your PPOR once complete.
will this help someone avoid CGT whilst making a profit and having a nic new PPOR?sorry if it sounds a little twisted but i have my eye on a property atm which this could apply to ( If it works)
welshy
Hi navyboy, that was what I thought to do with my last subdivision. As it turned out, I never lived in it but sold it and paid CGT which I then used other means to offset.
Made quite a handsome profit even without building and the person who bought it from me will make a substantial profit after building as well.
Quite a few small investors do this in Adelaide. But you have to be careful about the price you pay for the property initially and if the property market doesn't move upwards in the building phase, the profit may not be very big.
Surprisingly, the old house sells for about the same price even after the back yard has been chopped off!
With some external paving, fencing etc, you can get the original price back and then your new house will be far cheaper to own.
Good luck,
KYnavyboy wrote:hello all,
just wanting to clarify a point
if you purchase a PPOR and happen to subdivide it, the sale of the new block has CGT with it. Yes?
But what if you live in the house, subdivide, sell the house you live in ( CGT exempt) whilst building on the new block. which will become your PPOR once complete.
will this help someone avoid CGT whilst making a profit and having a nic new PPOR?sorry if it sounds a little twisted but i have my eye on a property atm which this could apply to ( If it works)
welshy
This is theoretically correct. You generally have 6 months to treat both properties (the one with the house on it and the new block on which you are building) as your tax-free main residence, subject to certain timing conditions. You need to satisfy yourself that you qualify – the law is in section 118-140 of the Income Tax Assessment Act 1997 (alternatively, speak to your accountant).
On the other side of the coin, if you have always had the intention to profit from executing the arrangement, there is a risk that the transaction may be treated as a one-off profitmaking undertaking, which means that the entire gain will be taxed as normal income, rather than CGT. In which case, the main residence exemption will not be relevant.
Again, I recommend that you speak to your accountant to ensure that you are comfortable with the tax implications before proceeding.
Eddie
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