Best Path to minimise CGT

[mkattela]

G' day folks!

Currently myself and 2(Total 3) of neighbours are planning to combine the land and give it for a developer to demolish the current houses and build town houses

Total Land size of 3 neighbours = 3000 m2 (Approx)
Total town houses expected = 12 to 16 (currently assuming minimum as 12)

currently the status of the 3 houses are 2 of them are owner occupied and 1 is an investment property.

Currently we have the following plan
Developer develops 12 town houses and gives 6 town houses to us(2 for each neighbour) and sells the rest of 6 town houses

What is the best way to go about this development?

Total Town houses development cost = 12 * 150k = 1.8m
Developer to sell 6 town houses = 6 * 400k = 2.4 m
current Market price of 3 houses = 3 *550k = 1.65m

Please help on what is the best way to develop town houses and save CGT

 

[Mick C]

Hi,

Some may work some may not, as it depends on what tax bracket your on and your personal financial situation and goals.

1. Keep for 12 month before selling (50% discount)
2. Interest in advance another IP loans that you may have
3. If you have any investment that is making a lost - ie shares...might be a good time to offload
4. If you have another IP and your thinking of doing renovations, used the sales fund towards the renoations ( must be done within the same year)
5. Sell the town house around BUT NOT BEFORE the 1st of July - this gives you ONE full year to work out a way to lower the CGT + time to do the above.


Or you can just live in them all and declare as one masssiveeee PPOR

Regards
Michael

 

[mkattela]

G' day Michael,

Thanks for your quick response.

1) Is it posible to move into 1 of the townhouse and sell after 1 year?
2) Interest in Advance to my IP? Actually my IP is also going into the same development. (the 3rd Property in IP myself and my friend own in Partnership)
3) no shares or other investment
4) No other IP
5) great advice, I will keep that in mind

Regarding tax bracket I am in around 125k mark.

Is it possible once the townhouses are developed, I can make one of the property as PPOR and sell after 1 year to get 50% CGT exception

I wish all will be owner occupied

 

[Mick C]

PPOR is exempted from CGT - as long as you have ONE declare PPOR only etc...the 50% discount applies to IP and any another investment where you hold it for more then 12 month.

Since you dont have any another IP while this is being built then you got nothing to apply interest in advance to.


As always speak to an accountant about personal details + to confirm details are correct etc.

Regards
Michael

 

[Aaron_C]

It might not work because a developer is in the business of property development - which means that Capital Gains Tax doesn't apply but the entire sale is treated as ordinary income. Then no discount applies and you pay a lot of tax.

 

[Mick C]

True and good pick up.

Since there is going to multiple applicants it most likely going to be set up as an company or a trust. Which means CGT is payble at full rate

Regards
Michael