Capitalised costs for subdivision and PPOR

[Bargain Hunter]

We purchased a dual occupancy lot and live in one while renting out the other. The loan is split so that the PPOR is P&I and the other property is IO, this allows us to pay down the PPOR while treating the other part of the property as a normal investment.

The property is subdividable and we will probably do this just before we sell.

I assume that if we did not subdivide then the CGT would be calculated as half exempt (PPOR) and the othe half no exemption.

If we subdivide do the costs of the subdivision get capitalised to the investment property or do they need to be spread across both?

How is the CGT calculated? Do we need to get a valuation before carrying out the subdivision or is it based on half the original value plus capitalised costs?

Regards

Andrew

 

[lizzie]

bargin - we've done this a couple of times and found that the tax office were more than happy with the orginal purchase price being split. with all ours the houses were worth roughly the same so we just divided the purchase price by two. subdivision costs also needed to be shared evenly - unfortunately can't just be absorbed by the ip. if the ip is obviously worth significantly less than the ppor then i would suggets a valuation, even take at today's value, and then it can be ratioed back to reflect the orginal purchase price, ie, if the current valuation is $300k for the ppor and $200k for the ip and the orginal purchase price was $300k for both then you need to ratio the $300k at 3:2 or $180k:$120k. if this is the case then stamp duty and solicitor costs would also need to be ratioed out.

you've done the right thing by having the split loan to start with.

then cg is only payable on the allocated ip portion - sale price of the ip less the ratioed overall purchase price/costs, half the subdivision costs and all of the ongoing costs relating specifically to the ip.

hope this helps.