Capital Asset or Trading Stock

We purchased a PPOR around 16 years ago and the Vendor also owned three vacant blocks of land behind the PPOR. Circa 2 years later we were in a position to purchase these blocks from him (in personal names), mainly to maintain privacy and prevent them being populated with giant McMansions overlooking our yard. One block has a shed (now used for storage) which is accessed via the same ROW our house is accessed (House sits about 15/20 feet above the street).

Time passes and we now live in another state to the house and we are now considering building our own McMansions upon the 3 vacant blocks - the blocks are probably worth 8 times the original purchase price so the cost base is low.

Having spent some time reading ATO judgements/rulings and advice I've become quite confused about whether it would be treated as trading stock or capital asset - income or CGT.
 
Could be both. The land may become trading stock after a long period be being held for capital gains.

In your situation you appear to be holding long term with the new intention of to build and hold.

Had you been claiming any expenses on the land?
 
Me too and I'm a tax adviser.:D Definitely a bit in such a simple question.

I would think that given the potential for issues with pro-rata main residence exemption, apportionment, CGT, GST, separate CGT assets ? (1, 2, 3 or 4) etc its well worth obtaining full and complete personal advice so errors are not made and tax may be minimised. These issues will occur whether you choose to build for income or sell for profit now or in a few years time.

There can be strategies that can inflate the cost base that will maximise the CGT discount and minimise future income tax too. These issues need to be identified and planned. Little things may impact...Do you plan to keep any ? Sell any ? What are incomes ? Timing and ages....

Your question is a good one and good example of why paying for property tax planning advice can save you a motza.
 
Build and sell would be the most likely outcome. There are some economies to be had from building and selling all of them at the same time, but it seems that can be wiped out (and then some) if any proceeds are treated as income.

No expenses being claimed, to us its just vacant land providing a bit of a buffer zone.

The allure now is becoming debt free and semi-retiring

We recieve a single rates notice even though it is 4 separate titles

We are both around 40 and make reasonable money (combined 200+)
 
Build and sell would be the most likely outcome. There are some economies to be had from building and selling all of them at the same time, but it seems that can be wiped out (and then some) if any proceeds are treated as income.

I don't agree. "Wiped out" as in CGT exempt. No. But there can be strategies to emphasise it. If wrongly selected it can lead to a large taxable profit too.

No expenses being claimed, to us its just vacant land providing a bit of a buffer zone.

That may increase the cost base.

The allure now is becoming debt free and semi-retiring.

Selling to repay debt is same objective strategy as making a profit according to ATO.

We receive a single rates notice even though it is 4 separate titles

Titles don't always impact. Many homes are on several titles (ie apartments. CGT rules consider use and area as well as cost.

We are both around 40 and make reasonable money (combined 200+)

Comments above in bold
 
The further I read the further down the rabbit hole I appear to go.

Currently reading about whether the 15 year CGT exemption for small business potentially combined with bring forward rule for super may be an option.
 
If your total area of the old PPOR and the other land is under 2 ha it may be worthwhile looking at the 6 year absence provisions and selling the whole lot in one transaction if you have not claimed another house as a PPOR.
 
If your total area of the old PPOR and the other land is under 2 ha it may be worthwhile looking at the 6 year absence provisions and selling the whole lot in one transaction if you have not claimed another house as a PPOR.

We intend to retain the main residence indefinitely which makes things a little more difficult.

All the property concerned is in Mrs Hulkster's name
 
I would be comfortable saying that this could pass on capital account not revenue.

What structure were they purchased in?
Do you do any other form of developments elsewhere?
 
I would be comfortable saying that this could pass on capital account not revenue.

1. What structure were they purchased in?
2. Do you do any other form of developments elsewhere?

These two factors are irrelevant to determining whether land is trading stock. Mrs Hulk owns the land and has always owned the land. Entity use doesn't change outcomes (other than loss of the main res exemption or a CGT discount). You don't have to change ownership to have a CGT event. ie K4 "Land becomes trading stock".
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Events/Summary-of-CGT-events/?page=12

Repetition is not a requirement for revenue. However merely moving out would not trigger K4 either.

Intention is key.
 
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