Avoiding Capital Gains Tax by Building

No I don’t believe that is accurate at all. When you buy a property, you are only free from paying the capital gains tax for the period it is your primary place of residence. Don’t take this as ‘law’ but I am pretty sure that if you build and live in it for two years you won’t pay capital gains tax for the 2 years you lived in it…but you will pay capital gains tax on the rest.

A better way to access your money could be through an equity loan. You don’t pay capital gains tax on equity loans, it is effectively tax free money until you sell the property. But you can then use that money to go and buy other investment properties.

What I would do if I was in your shoes (and you can bet there are hundreds of people on this forum wishing they were in your shoes) is I would keep the block of land. With growth that good why sell it? Then bit by bit get equity loans to purchase positive cashflow properties. The positive cashflow properties can help to supplement your income and make your financially free. The land acts as a means to buy those properties. You can easily easily easily become financially free if you have over $1 million in equity!!!!

I run a service that find positive cash flow properties for people. You should check it out (the link is in my signature)

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away

Rebecca,

With an issue like this you need to seek paid professional advice. 

You cannot simply make the capital gain go away by building and making it your PPOR.  It will be proportionate.

With some planning and a better overview of your situation a good tax accountant should be able to significantly reduce your CGT bill.

Where are you located? Maybe I can refer someone.

Kris

yes thats correct

but if you live in the house for more than 12 months then you pay no tax but if you rent the house and sell it after 12 months then you pay half

Hi Rebecca,

Firstly, if the block is sold as is, you will be up for Capital Gains Tax on 50% of your gain. But all of your interest, council rates and land tax add to the cost base. So the capital gain will be reduced. (This is assuming it hasn't been deducted already, and seeing as it is a block of land, it probably hasn't)

ie: Purchase $310,000, holding costs $25000, interest, $120,000. Total cost base $455,000
Sold for $1,400,000. Capital gain $945,000, of which 50% is assessable.

This would be your capital gain regardless of whether you sell now or decide to build your PPOR. (Of course, you don't pay any CGT until you sell)

Secondly, there is NO MINIMUM TIME for a house to be treated as your main residence, to qualify for the main residence exemption. It is a question of fact, so you must prove (if asked) that you lived there. You prove this by changing your drivers license address, connecting the phone, electricity, gas etc in your name.

That is correct. You need to have lived in it INITIALLY for any length of time. If you do this you have up to 6 years to claim it as principal residence,and can rent it over this time too. We have done this whilst renos were done one our main house. You can move back in prior to expiry of 6 years to claim another 6 years of CGT free time. As suggested above,changing mailing address,enrolment etcc.. So in the above case CGT will be payabel on half the profit. But remember if you have bought in joint names then the gain is shared and depending on your annual income, your tax maybe not as much as you think. Of course you could not work one financial year, sell off ,and this would amount to the lowest tax payable.
    The other option may be to use the equity in the land to subdivide and build if possible, and sell off portions as you see fit…this would place smaller capital gains every year. Just my thoughts but an accountant should know all the ins and outs….

Mike

You can only have 1 main residence at any one time, so that plan wouldn't work. You could claim the exemption on the 1st house in full, then the second could be CGT during the period you lived in it and so on.

Go to the best tax planner/ advisor possible and pay the $$$$$ for the best help in this instance because if you get some of the planning worng here thereas  there is huge sums of CGT and tax liabilities/ potential at risk. Where are you as I have great acct/ tax planners in Sydney and Brisbane. Either way if slugged fully or partially with tax, seems a great level of growth and I wouldnt care about paying tax- the more I pay the better as means Ive made more $$$$ and profits. Dont get caught up in not wanting to do things in case you have to pay tax or the tax you need to pay, look at things in a yearly basis and ask your self well even if I pay xyz, would I have been able to earn this money in a 9- 5 job or corporate job??? probably not. I love paying tax! but only pay what I need to as the more I pay means the more I have made really and turned over.