Capital Gains Tax on sub-divided land
- Thread starter morty
- Start date
Yes. You lose the PPOR exemption when you split off land so be prepared to pay on the full gain for the land sale.
To reduce the profit, you need to increase the purchase price, which is called the cost base for capital gains purposes. The higher it is, the lower the tax. To do this, you'll need to apportion the original purchase of the entire lot (both pieces of land and the building). You can add to the cost base by adding extra costs to the saleable land such as 50% of shared costs (eg stamp duty on purchase, subdivision application) and 100% of direct costs.
For example, you buy land and a house for $250,000. You live in the house. You split off the land at the back and the valuer tells you that the land was worth $100,000 when you purchased the property. You sell it for $200,000. You spent $12,000 on it in both shared expenses and direct expenses. Your gain is $88,000 which can be discounted to $44,000 if you owned it for more than a year, which is then taxed at your marginal rate.
To reduce the profit, you need to increase the purchase price, which is called the cost base for capital gains purposes. The higher it is, the lower the tax. To do this, you'll need to apportion the original purchase of the entire lot (both pieces of land and the building). You can add to the cost base by adding extra costs to the saleable land such as 50% of shared costs (eg stamp duty on purchase, subdivision application) and 100% of direct costs.
For example, you buy land and a house for $250,000. You live in the house. You split off the land at the back and the valuer tells you that the land was worth $100,000 when you purchased the property. You sell it for $200,000. You spent $12,000 on it in both shared expenses and direct expenses. Your gain is $88,000 which can be discounted to $44,000 if you owned it for more than a year, which is then taxed at your marginal rate.
Sorry, I probably needed to be more specific. Your taxable profit is what you sell for less what you purchased it for (plus costs) so I was referring to your purchase price, not the purchase price of the person you sell to.
In the above example I used, the purchase price is the $100,000 plus the $12,000. The sale price is the $200,000.
I hope that makes things clearer.
In the above example I used, the purchase price is the $100,000 plus the $12,000. The sale price is the $200,000.
I hope that makes things clearer.
Cgt
According to my accountant there is one exception to the rule in that if you purchased your PPOR before October 1985 you will not have to pay CGT if you sell the vacant block.
According to my accountant there is one exception to the rule in that if you purchased your PPOR before October 1985 you will not have to pay CGT if you sell the vacant block.
From memory (which is rapidly failing), CGT used to be indexed if purchased before a certain time. So you would take the purchase price, index it with inflation, and only pay CGT if it sold for more than the indexed price.
The 50% exemption was, as I understand, a way to simplify this process.
Morty
If the property was purchased after the 20th August, 1991 section 110-25(4) allows you to also increase your cost base by that portion of the rates, interest and maintenance such as law mowing.
Julia
www.bantacs.com.au
If the property was purchased after the 20th August, 1991 section 110-25(4) allows you to also increase your cost base by that portion of the rates, interest and maintenance such as law mowing.
Julia
www.bantacs.com.au
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