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I am an avid property investor and would like to diversify my existing property portfolio and start developing property. I am planning to buy a block that has subdivision potential, demolish the existing house, subdivide the block and build two houses. What are the tax consequences?
Hi WJ, There are many varying tax consequences of your project and the answer really requires an appointment to discuss the project in greater detail. I would need to know 1) whether you are planning to keep the properties for long term rental in which case the project will be 'input taxed' for GST purposes, that is; you can't claim the GST on all of the project expenses and you will be taxed under the CGT regime when you eventually sell - this is preferential as you get a 50% exemption providing you held the property for more than 12 months. Or 2) are you planning to sell the houses in which case you would be able to claim all the GST on the expenses but would also have to levy GST on the same. Also, you would be taxed as a profit making scheme - that is; this is a business for you and all the gain made is taxable (no 50% exemption as above). Maybe, you will sell one and keep one - in that case - part or 1) and part of 2) will apply. You really need full professional advice BEFORE you commence this project as the tax consequenses may make or break the deal for you financially.
Hello, My friend and I are builders and hoping to buy a block of land and build on it, then selling it. We would ideally like to do this a few times (if it works out). Will the initial house be taxable or covered under main residence expemtion and if not when does it become an issue? Thanks for your time Pat
Hi Pat, Your question has many different aspects to it including CGT and GST. If you are in the business of building then you would likely have to pay GST on all sales and you would not be able to claim the main residence exemption. On the other hand, if this was just a side hobby, and you only built one every year or so, and lived in each one for more than 3 months each time, and had no other main residence, then you may get away with not paying GST and CGT - but this would not work if the ATO could prove you were in business, or the activity was done with a profit making intention, or predominantly for tax avoidance. As you can see - a complicated question. Please seek professional advice from your Accountant or myself before proceeding.
Hello
ReplyDeleteI am an avid property investor and would like to diversify my existing property portfolio and start developing property. I am planning to buy a block that has subdivision potential, demolish the existing house, subdivide the block and build two houses. What are the tax consequences?
W.J
Hi WJ, There are many varying tax consequences of your project and the answer really requires an appointment to discuss the project in greater detail. I would need to know 1) whether you are planning to keep the properties for long term rental in which case the project will be 'input taxed' for GST purposes, that is; you can't claim the GST on all of the project expenses and you will be taxed under the CGT regime when you eventually sell - this is preferential as you get a 50% exemption providing you held the property for more than 12 months. Or 2) are you planning to sell the houses in which case you would be able to claim all the GST on the expenses but would also have to levy GST on the same. Also, you would be taxed as a profit making scheme - that is; this is a business for you and all the gain made is taxable (no 50% exemption as above). Maybe, you will sell one and keep one - in that case - part or 1) and part of 2) will apply. You really need full professional advice BEFORE you commence this project as the tax consequenses may make or break the deal for you financially.
ReplyDeleteHello,
ReplyDeleteMy friend and I are builders and hoping to buy a block of land and build on it, then selling it. We would ideally like to do this a few times (if it works out). Will the initial house be taxable or covered under main residence expemtion and if not when does it become an issue?
Thanks for your time
Pat
Hi Pat, Your question has many different aspects to it including CGT and GST. If you are in the business of building then you would likely have to pay GST on all sales and you would not be able to claim the main residence exemption. On the other hand, if this was just a side hobby, and you only built one every year or so, and lived in each one for more than 3 months each time, and had no other main residence, then you may get away with not paying GST and CGT - but this would not work if the ATO could prove you were in business, or the activity was done with a profit making intention, or predominantly for tax avoidance. As you can see - a complicated question. Please seek professional advice from your Accountant or myself before proceeding.
ReplyDelete