Capital gains on development

[Nemo]

Hi all.

very new this so want to ask this question. If I purchase a old house on a blok of land lets say for 400k and build three units for 500k and then sell one of the units after subdivision for 400k do i have to pay capital gains?

i mean in the end i will have 3 properties worth 400k each.
but my total costs are 900k

So when do i have to declare a capital gain...
when i sell 1 or when i sell all 3.

cheers
nimesh

 

[Propertunity]

So when do i have to declare a capital gain...
when i sell 1 or when i sell all 3.

nimesh, as expected the answer is "it depends". You only declare a capital gain when you realise one - on a sale.

If you are considered to be a developer, then you don't pay CGT at all. This is because the land & old house are considered to be "stock on hand" (not the right words sorry). You'd be paying GST on the sales though (and claiming GST input credits on the build costs) .......and if your entity (if you used one) made a profit, then it would pay tax on the whole entity's profits - if it made a profit after all the entity's expenses.

You need to seek an accountant's advice.
Julia at bantacs is good on this sort of stuff.
www.bantacs.com.au

 

[Ausprop]

yes and as the entity is a development entity, even if you sell the remaining 2 in say 10 years you will be assessed on full marginal rates and not be eligible for CGT reduction.

i am starting to turn on development a bit. I am thinking now that by all means develop, but only if you can and will hold the stock. For resi it's pretty useless because even if you develop, the stuff is still neg cashflow at the end of it (goes to show how bad cashflow on resi is). Unless of course you have a good alternative source of income and can get a nice 5% full doc loan thru a big 4 bank