Backyard subdivision

If you were to buy a property and decide to subdivide and sell of the rear with plans and permits, it is my understanding that no GST is involved unless you have built on it but if you were to build and sell GST will be payable on the sale. Is this correct?
Also, when calculating the CGT payable on disposal of the backyard you need to work out a cost for the land. What method is acceptable for calculating this cost ( e.g. Real Estate Agents' estimates, comparable land sales, etc.) and what proportion of the costs involved in subdividing do you attribute to it? If the cost base calculated was greater than the sale price, maybe due to a softening in the market, do you have a legitimate capital loss that you can use against other gains?
 
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Originally posted by dionysus888
If you were to buy a property and decide to subdivide and sell of the rear with plans and permits, it is my understanding that no GST is involved unless you have built on it but if you were to build and sell GST will be payable on the sale. Is this correct?
Also, when calculating the CGT payable on disposal of the backyard you need to work out a cost for the land. What method is acceptable for calculating this cost ( e.g. Real Estate Agents' estimates, comparable land sales, etc.) and what proportion of the costs involved in subdividing do you attribute to it? If the cost base calculated was greater than the sale price, maybe due to a softening in the market, do you have a legitimate capital loss that you can use against other gains?
Hi

The tax office have only recently issued a new ruling on this issue and it means that you would be correct in saying that the sale of the sub-divided land is not subject to GST regardless of whether you have built on the land or not.

Be careful though, if you have bought a block of land solely for this purpose, you leave the door open for the tax office to deem that you have entered into this transaction to make a profit (der!!!!) and as such you are carrying on an enterprise and therefore, GST might apply.

In creating two titles, the tax office expects you to apportion the original cost of the land between the two properties. You can use the "area base" or the "relative market value base" and the tax office are currently happy with each.

Of course, you also add the costs of sub-division which are split between the two properties as well.

Yes, if the sale price is less than the new cost base of the sub-divided property then you have a capital loss which can be carried forward until such time as you make another Capital Gain.

Tada!! My work here is done!
Have fun

Dale
 
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