Hey All,
Just trying to get some discussion going before I speak to my accountant/solicitor.
My brother and I own a joint property in our own names, we have both lived in it for over a year so are exempt from CGT.
We are about to subdivide the land and build a second dwelling at the rear.The options we are considering (pending professional advice) is to either move out and hold both properties (They would be slightly CF+) and then draw the equity to continue building our property portfolio (We anticipate around 320k equity upon completion). The other consideration would be selling the existing dwelling once subdivided as we would not need to pay CGT and then hold the second. The freed cash from the sale would then be used to continue our portfolio.
So firstly what are peoples thoughts on this idea and secondly what structure would you consider. Our future goals are to develop properties and ideally combine both selling and holding depending on the situation.
My understanding is that we would need to sell the subdivided land to the trust if this is the path we choose. Obviously we would need to do this before the build and just sell the land to limit cost of stamp duty.Thanks in advance
BenHi Ben
While not responding to all your questions, I am wondering about your statement that since you have lived in the property for 12 months, you cancel the CGT?? Since you have owned it for 12 months, you would pay 50% CGT, but not 0%?
If you then subdivide and develop etc etc the clock might start again re: values etc as new values would be calculated following the subdivision?? Not sure here, just throwing out things to think about.
Are you asking what structure to buy in? I thought that decision would have to be made prior to buying the property at all (as opposed to prior to developing).
ChrisA1
Persistence is 'to keep on keeping on, no matter how hard the going may be'
Hey Chris,
There is a full CGT exemption if a property is your PPOR but, which according to the ATO
Full exemption
You are likely to be eligible for a full main residence exemption if the dwelling:
has been the family home for you, your partner and other dependants for the whole period you have owned it (ownership period)
has not been used to produce assessable income – that is, you have not run a business from it or rented it out, and
is on land of 2 hectares or less.
If the exemption applies your capital gain or capital loss is disregarded and you don’t pay tax on any capital gain you make (but nor can you use the capital loss to reduce your assessable income).Seeing as though I have lived their the entire time I have owned it and not used it for business or as an IP it out I would qualify for the CGT exemption.
In regards to the “clock might start again” then from what I have read the subdivided land on which the PPOR is located would still remain exempt but the new vacant block would now be subject to CGT if I sold it as a vacant block or if I developed on it.
The final point you make is where I am having difficulty understanding the best approach. I agree that the decision should be made before buying the property but we acquired the property with a totally different outlook. Our original plan was to demolish, subdivide, build side by sides and go our separate ways. It is only recently we decided we wanted to get into property investing together.
It depends on the state because that can have serious land tax issues.
In QLD you would probably use a partnership of discretionary trusts. Your DT in partnership with his. Better for land tax as you get double the threshold and also he controls his and you control use and so can be less messy. I do developments with my brothers and that is the structure I personally use in QLD.
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
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It depends on the state because that can have serious land tax issues.
In QLD you would probably use a partnership of discretionary trusts. Your DT in partnership with his. Better for land tax as you get double the threshold and also he controls his and you control use and so can be less messy. I do developments with my brothers and that is the structure I personally use in QLD.
Hi RPI,
Thanks for the info. I am based in Victroia and will likely begin by building my portfolio around here for the time being.
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