Hi Guys,
Hoping for some tax advice, We have a 2000m2 block purchased back in 2005 for 77k. Earlier this year we were fortunate enough to sell the rear 1000m2 of the block for 130k to a neighbor who wanted to increase the size of his block which has now been settled and subsequently left us with a 1/4 acre. We have long though about relocating to the area as it is close to family so the temptation to build has been strong, but we were recently contacted by a local real estate agent and a reasonable offer was put forward by a potential buyer (in the order of 185k). My wife and I are traveling overseas and have not worked in the current financial year, so my first question is what capital gains would be payable on both sales in the same financial year? Would it be beneficial (if we accepted offer) holding off the settlement until the next financial year or.. Building a house on it ourselves and living in it given that we will be moving home shortly and potentially saving a lot in CGT.. How long would we eed to live in it before selling to avoid CGT etc.. Lots of questions, I appreciate your time. This forum has been an invaluable source of information and advice over the years so thanks to all that contribute on a regular basis.
Hi Bullion,
From what I understand, the ‘capital gain’ event will occur when you accept the offer (and sign the contract), and the actual settlement date (when you receive the money) doesn’t impact the capital gains tax calculation.
If you are comfortable with managing the build (or happy to pay someone to do it) then it may be worthwhile, as you mentioned that you are moving home soon and the property would be in an area you would like to live. There would obviosuly be a number of other things to consider prior to going down this path (e.g. time/cost to get plans approved, complete the build, financing etc.)
Regarding the CGT exemption, I believe 12 months is generally the accepted timeframe but this can be less if you can show that the property was clearly your pricipal place of residence. Happy to be corrected on this one.$77k purchase
$185
$130 sale
—-
$315k$250k profit.
take off stamp duty, agent fees other holding costs not otherwise claied,
$40k say$210k profit
$105k assuming eahld each
50% discount
$52500 income eachSo you would pay tax on this $52k
Might work out to be $10 k each assuming no other income.Very rough estimate assumming you sell on capital account.
July is not far away, could you hold off on exchange?
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
Hi Bullion,
Nice opportunities there. :) Re the CGT, I am certainly NOT an expert, and, the more I look at it, the more I think I should “Pass” and have you tell us after speaking to a good adviser (Accountant). But below were a few of my thoughts – see what you think….At first, I thought great – by selling half, your Cap Gain was ~$53k max. (then a 50% discount, then taxed on $26k = stuff all tax to pay). But then, that would then mean ALL of the $185k would be a gain on the second sale, so the CGT ramifications would be huge (and would depend on what you would earn in next FY too).
Or, maybe on the first sale you would apportion HALF the initial cost as the Cost Base, thus giving you a Gain of over $90k on the first sale (then 50% discount, then taxed on $45k = a few $k tax to pay – not too bad).
Are you allowed to CHOOSE which method to use? I don’t know…. But I would certainly like to hear the answer.
For sure, do check all options before making the decision. The numbers will tell you which is the right way to go. Maybe it will make A LOT of sense to build on it as your PPOR… Interested in the outcome,
Benny
Later – I see Terryw was answering you as I was compiling mine. Cool !! Terry is one who really does know – unlike me ….. He picked up on the possibility that the land is owned in joint names (I’d missed that). Thanks Terry :)
Hi Bullion,
You will not get a full main residence exemption even if you build a house and live in it… That is because the main residence exemption can only apply to land purchased within 4 years of the property being constructed on it. Hence, you will always have a cgt event on the land as you have owned the land for more than 4 years. Once a property is constructed on land, you must move in as soon as practical and then live in there For at least 3 months to even come within a partial main residence exemption. The sale of the separate land will be subject to cgt. If you have land only and have derived no income from the block, then you have probably not claimed a tax deduction for holding costs (ie interest on any loan, rates, mowing etc) .. Those applicable holding costs will generally be able to be added to the cost base and hence proportionately reduce the capital gain. The capital gain is deemed to trigger upon the date of signing the contract and not the settlement date… Deferring settlement does not affect the timing of the cgt event…. It is the contract date which triggers this. For cgt purposes, it is generally preferable to realise capital gains in a year in which you have little or no other income but that obviously depends on the level of the capital gains etc.
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