Hi All,
Keen to get some clarity on CGT treatment in an attempt to complete a feasibility analysis on my first (potential) knock-down and build of a duplex.
I'm working through a detailed analysis however at this stage, a first cut view results in the following:
- Sales Revenue – $1,200,000 (2 x 3Bdr Duplex)
- Less Selling Costs – $41,480
- Less Building Costs – $530,000 ($1,500/sm 130 sqm x 2 Duplex + Strata/demolition costs)
- Less Old House Acquisition Cost – $524,788 (includes purchase price, stamp duty & 12 months holding costs)
- Gross Profit – $103,731.93
From here, I'm a little unclear on CGT/GST implications.
- How is CGT calculated given the initial house has been demolished and how is it treated on the two separate duplex?
- How would GST be calculated and when would this liability occur?
Any clarity you good folk could provide would be greatly appreciated!
I still have some way to go in terms of understanding each of the variables within building costs but keen to understand profitability prior to further assessment.
Harry
No CGT likely as this seems to be a profit making enterprise rather than a long term investment. Profit likely to be taxed as income. Since new property involved GST would be on the sale price – possibly able to apply margin scheme
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
Selling costs shouldn't be as high as 40k, Try working out based upon 2-2.5% per dwelling
Holding costs should be longer unless you already own the property or have long settlement
gst would be applied when you sell the property. Gst credits can be claimed to increase cash flow throughout the build.
Does your build cost include a turn key finish, including storm water, plants, landscaping, external footpaths, paving etc
Thank you to both Terry and Wilko – definitely appreciate being steered in the right direction.
In regards to GST implications, are there any definitive guides as to how GST would be treated (I.e. Margin scheme)? As you can probably see, I'm still getting my head around the feasibility analysis of development. Clearly quite a few factors to consider!
And Wilko – I assumed selling costs of 2.2%, in addition to solicitor/advertising fees. I'll definitely go back to the drawing board re construction period assumptions – I've clearly undercalled that!
From here my biggest learning curve will be building a detailed construction cost analysis – certainly looks like a challenging process!
Thanks again,
Harry
For solicitor/conveyor fees I would just assume 1000 dollars. And for advertising I wouldn't advertise more then 1000 dollars. Signboard, Internet, maybe some
local paper adds.
As as a rough guide to calculating gst. It roughly works out to be 10 % of your profit. Roughly speaking ie a 100k profit on building a house could lead to a 10k gst payment.
As a guide for costing the price of building look on BMT tax depreciation website and they have average sqm rates for building dwellings. 1,2,3 bed 1 and 2 story etc
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