Can someone tell me if this is legal please?

[littletee]

Hi All,

Interested to know if an idea I have is legal or not.

Basically I'm building 2 identical townhouses as we speak. My idea was to build one for our family which will become our PPOR and the other I was going to sell.

Would it be legal if I moved my family in to one Townhouse for 3 months and make that our PPOR and then sell it after 3 months as our PPOR and then move in to the one next door which would then become our PPOR after the other Townhouse we originally moved in to has been sold and settled?

Any issues with the above?

 

[Xenia IM]

Other people have done this too

 

[littletee]

Thanks Xenia.

Not sure how it wouldn't be allowed but I'm not a property law expert nor an Accountant so thought I'd ask the question first.

 

[GreyGhost]

If you buy a house and live in it as your PPR, do a dual occ and once rear unit is built move into it, then sell the front house, this can be a strategy that works.

But it's not as simple as above and your scenario is different.

Suggest you sit down with your accountant and plan this out.
Time and time again clients come in AFTER the event and the accountants hands are tied.

Good luck.

 

[Rob G.]

Hi All,

Interested to know if an idea I have is legal or not.

Basically I'm building 2 identical townhouses as we speak. My idea was to build one for our family which will become our PPOR and the other I was going to sell.

Would it be legal if I moved my family in to one Townhouse for 3 months and make that our PPOR and then sell it after 3 months as our PPOR and then move in to the one next door which would then become our PPOR after the other Townhouse we originally moved in to has been sold and settled?

Any issues with the above?

I don't think many on this forum could give an informed opinion on the operation of Part IVA ITAA97 and section 165 GSTAA.

In fact, I don't think many accountants could either. Hopefully they know just enough to get (expensive) legal advice if you present them with this scenario.

 

[Terry_w]

Hi All,

Interested to know if an idea I have is legal or not.

Basically I'm building 2 identical townhouses as we speak. My idea was to build one for our family which will become our PPOR and the other I was going to sell.

Would it be legal if I moved my family in to one Townhouse for 3 months and make that our PPOR and then sell it after 3 months as our PPOR and then move in to the one next door which would then become our PPOR after the other Townhouse we originally moved in to has been sold and settled?

Any issues with the above?

There are no laws which prevent a person living in their own homes.

But if you sell tax and GST would probably be payable - possibly on both.

 

[littletee]

There are no laws which prevent a person living in their own homes.

But if you sell tax and GST would probably be payable - possibly on both.

Thanks Terry, why is that? Does the Law not state that you can buy/build a dwelling and move in to it as your PPOR and as long you live in a minimum of 3 months you can sell it CGT free as its your PPOR?

 

[Terry_w]

Thanks Terry, why is that? Does the Law not state that you can buy/build a dwelling and move in to it as your PPOR and as long you live in a minimum of 3 months you can sell it CGT free as its your PPOR?

I know no law which states that.

 

[littletee]

I know no law which states that.

Lol ok maybe I should have worded it differently - my assumption was that as long as you live in your PPOR for minimum 3 months, you could then sell it without any CGT implications.....is this correct or incorrect? Thanks

 

[truong]

Not a lawyer myself, but the way you're asking your question here is indicative of a scheme under Part IVA. Get legal advice.

https://www.ato.gov.au/General/Gen/Part-IVA--the-general-anti-avoidance-rule-for-income-tax/

Having regard to the eight matters specified in part IVa, would it be objectively concluded that you or any other person entered into the scheme or carried out the scheme, or any part of it, for the sole or dominant purpose of obtaining the tax benefit?

The eight matters are:

1. How the scheme was implemented
The manner of implementation
It is important to consider whether the way the scheme was formed or implemented can be seen to be 'contrived' to obtain the tax benefit.

Form and substance
This looks past the form of a scheme to consider the substance of what is being done. A discrepancy between the business and practical effect of a scheme, on the one hand, and its legal form on the other may indicate the scheme has been implemented in a particular form to obtain the tax benefit.

Timing issues
Issues such as the time a scheme was entered into and the length of the period during which it was carried out also need to be considered.

(...)

 

[Terry_w]

Thanks Terry, why is that? Does the Law not state that you can buy/build a dwelling and move in to it as your PPOR and as long you live in a minimum of 3 months you can sell it CGT free as its your PPOR?

You are developing to make a profit. Second one couldn't be CGT free under normal situation either as you are not living in it from the beginning.

 

[Terry_w]

Lol ok maybe I should have worded it differently - my assumption was that as long as you live in your PPOR for minimum 3 months, you could then sell it without any CGT implications.....is this correct or incorrect? Thanks

Not entirely correct. s 118-150 ITAA97 and s118-145

 

[Scott No Mates]

You might have to look at getting the occupancy certificate in stages ie unit 1 so that you can live in it then get the subdivision & titles, sell the first then get the oc for the second and move in.

Don't know how this would affect either the gst or cgt liabilities.

 

[littletee]

Thanks Terry for the info, clearly you know your stuff. Looks like am wrong but I'll ask my Accountant anyway.

Thanks Scott, can't do that as I need to get sub-division at the same time to secure construction loan from NAB.

 

[Paul@PFI]

Hi All,

Interested to know if an idea I have is legal or not.

Basically I'm building 2 identical townhouses as we speak. My idea was to build one for our family which will become our PPOR and the other I was going to sell.

Would it be legal if I moved my family in to one Townhouse for 3 months and make that our PPOR and then sell it after 3 months as our PPOR and then move in to the one next door which would then become our PPOR after the other Townhouse we originally moved in to has been sold and settled?

Any issues with the above?

Lets break this down.

1. You intend to develop to make a profit based on 50% of the site.
2. You will live in one (A)...Sell it then move into B.

The way I see it your profit on either is just as taxable no matter where you live. GST, Income Tax etc would all apply. The sole exception would be if you live in one and stay there for a prolonged period - Up to 5 years. Then no tax would apply and no GST would apply.

I assume then you haven't considered the margin scheme and the way it may reduce your GST substantially so that profit increases ?

 

[Paul@PFI]

Lol ok maybe I should have worded it differently - my assumption was that as long as you live in your PPOR for minimum 3 months, you could then sell it without any CGT implications.....is this correct or incorrect? Thanks

The CGT on a three month stay is trivial and you would be correct that the CGT would be exempt...For the three months, Even a week. ...You overlooked the income tax on the profit from the build, the GST on the sale etc.

The income tax profit isn't subject to CGT

 

[littletee]

Lets break this down.

1. You intend to develop to make a profit based on 50% of the site.
2. You will live in one (A)...Sell it then move into B.

The way I see it your profit on either is just as taxable no matter where you live. GST, Income Tax etc would all apply. The sole exception would be if you live in one and stay there for a prolonged period - Up to 5 years. Then no tax would apply and no GST would apply.

I assume then you haven't considered the margin scheme and the way it may reduce your GST substantially so that profit increases ?

Hi Paul,

Yes I will be using margin scheme, used it on my previous development and it worked very well.

Just thought I'd ask the question and get some opinions, still yet to ask the Accountant but I'm sure he'll say it can't be done for whatever reason, he's pretty conservative which I don't mind.

Thanks

 

[Paul@PFI]

Hi Paul,

Yes I will be using margin scheme, used it on my previous development and it worked very well.

Just thought I'd ask the question and get some opinions, still yet to ask the Accountant but I'm sure he'll say it can't be done for whatever reason, he's pretty conservative which I don't mind.

Thanks

There is no conservative approach to most issues of tax law. You either apply law correctly or incorrectly. In these "am I a developer" issues its important that your intentions are clear and then the strategy and advice that supports it can be sound. Often the accountant can be a good way to document this. Though your intention and advice at inception.

I liked Rob's post earlier....I agree many accountants can be out of their depth on these issues yet they appear so easy of face of it. Take care that conservatism doesn't mask a lack of knowledge.

New property sales are a high ATO audit focus. Attached is the form they send to many people who apply for a DA...It doesn't ask much but it does..

 

[littletee]

Thanks Paul for the info.

Spoke to the Accountant and he's comfortable with using the margin scheme process for this development so all good