Cap Gains Tax Question? Accountants please..

[Peter 14.7]

Hi All

A friend asked me this question, what your thoughts.

Couple sold house in Melbourne and moved to Macedon Ranges. 2 years later, they bought a rural block of land to build on and rented in the immediate area for another 2 years getting council approval for new PPOR, planting trees etc..

Recently they decided to buy a finished house 5km away and sold the block to finance the new purchase. reason was they run a small business and don't have the time to build with that and now 3 kids.

They do not own any IPs only the block.

The accountant advises they will have to pay Cap Gains Tax on the sale of the block?

I said, I thought it would easily qualify as your PPOR as you did not have two PPORS at any time, and rented locally. They also did not claim any expenses as business etc...Am I right?

They don't really trust their accountants call and asked me. The run a small business in retail. Looking for new accountant so may be open to introductions.

Regards Peter 14.7

 

[dan c]

PPOR exemption is only applicable if the land size is 2 hectares or less.

How big was the block?

 

[Peter 14.7]

PPOR exemption is only applicable if the land size is 2 hectares or less.

How big was the block?

2.9 hectare so does that means 2 hectares is exempt or the whole lot is included?

Thanks, Peter 14.7

 

[Peter 14.7]

Is CGT applied as exchange or settlement?

Peter

 

[dan c]

Assuming all the land was used for private purposes, 2 hectares, inculding the land on which the house is situated, will be exempt. A valuation will be required to work out how much that 2 hectares is worth, compared to the total sales proceeds. (ie 80% of total, or 85% etc.)

CGT is applied at the date of signing the contract.

 

[Peter 14.7]

Great, you just saved my friend $30k!

Note: they never built a house on it but has records showing intents, rates, etc... all in her name, No issue?

One block 2.7h with no home but work made for approvals to it.

Peter

 

[coastymike]

Why would the rural land be considered to be eligible for the PPOR exemption when it doesn't contain a PPOR ?

It is just a vacant block of land they intended to have a PPOR ? That wouldn't be eligible for the main residence exemption.

From ATO website "A mere intention to construct or occupy a dwelling as your main residence - without actually doing so - is not sufficient to obtain the exemption." http://www.ato.gov.au/individuals/content.aspx?doc=/content/36883.htm

Section 118-150 exemption for land you intended to build on doesn't apply as the building has not been constructed.

Based on the facts the accountant is correct.

 

[dan c]

Note: they never built a house on it but has records showing intents, rates, etc... all in her name, No issue?

One block 2.7h with no home but work made for approvals to it.

Peter

Aah, there is the problem.

For it to qualify as a main residence, the house must be built and they must have moved in. There is an exemption for the time it is being approved / constructed, but only if the other conditions are met.

My apologies, I read your post as your friend had built their PPOR on the block.

 

[Peter 14.7]

Thanks to all. A lesson learnt for all. Had they started it was ok.

Peter

 

[coastymike]

Not just started. Also had to have moved in.

 

[Peter 14.7]

Not just started. Also had to have moved in.

Well that makes it easier to swallow. Again thanks to all, Peter