GST & CGT on development

agent007 · 26th May, 2006

Was wondering how GST works when one is involved in a small development?. Let’s say I develop a duplex and sell one while keeping the other one. Do I have to pay 10% GST of the price for which I sold 1 of duplexes?. Also, do I get to pay CGT on the one sold or it is only paid later on if I sell the second duplex?

Thanks,

James

Mry · 27th May, 2006

Assuming they are both residential and the 'held unit' is rented out.

Unit sold - Claim GST on building costs, charge GST to seller (using the margin scheme if they are a private buyer - you can see other threads about this), taxed as ordinary income for the profit on sale.

Unit held - No GST can be claimed, no GST on sale if held and sold after 5 years, taxed as a capital gain on sale.

Apocalypse · 27th May, 2006

Other details aside, another of the anomalies in such a setup is that any CGT is deemed to have occurred at contract signing, but any GST is received at settlement.

agent007 · 28th May, 2006

Mry said:
Assuming they are both residential and the 'held unit' is rented out.

Unit sold - Claim GST on building costs, charge GST to seller (using the margin scheme if they are a private buyer - you can see other threads about this), taxed as ordinary income for the profit on sale.

Unit held - No GST can be claimed, no GST on sale if held and sold after 5 years, taxed as a capital gain on sale.

Hi Mry,

Thank you for your answer. Now, I think I understand the GST aspect a little bit more. However, the CGT is not so clear.

If I just sell one of the 2 IPs I develpoed, while at the same time holding the 2nd one, no capital gain is achieve up until I decide to sell the 2nd IP (if I ever do). Am I on the right track?

Thanks,

James.

Apocalypse · 28th May, 2006

You have to apportion a cost base for each duplex, and work the gain from that. So if you bought a block of land for 100K, spent 200K building duplex, then each is worth 150K as a base value (completely ignoring other costs for simplicity). This is also ignoring the GST issue.

Mry · 28th May, 2006

agent007 said:
If I just sell one of the 2 IPs I developed, while at the same time holding the 2nd one, no capital gain is achieve up until I decide to sell the 2nd IP (if I ever do). Am I on the right track?

I think so.

Well, keep in mind that you receive a taxable profit on the sale of the first unit. For the sale of the second, because your intention is to rent the house out and you do so it is considered a capital asset - thus the sale of it is a capital gain.

GST & CGT on development

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