CGT for develop/sell/hold strategy

From: Patrick Bruadair

I'm exploring alternative options in the property investment world. I have a query on CGT payable for a develop four/sell two/hold two strategy. For the sake of illustration, assume details as follows:
Buy block of land. Cost = $200,000
Build 4 townhouses. Cost = $360,000
Other related costs = $40,000

Total cost = $600,000 (=$150,000 per unit)

Then sell 2 townhouses at $200,000 each, total = $400,000 (total profit of $100,000
on 2 units, but still -$200,000 for whole development)

Hold and rent out remaining two townhouses for several years (hopefully positive cash flow). Is there a capital gain after the sale of two townhouses or is CGT payable only when a gain is realised on the whole development i.e. after all 4 townhouses sold?.


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Reply: 1
From: Gerard C

Hi Patrick,
I have been involved in similar developments, and the tax man definitely wants his cut on any sale. The costs have to be apportioned among the units, ie if one unit is larger, it gets a lager proportion of the costs etc. Too bad we can't delay paying CGT till we sell all the units (never!). This is pretty clear cut, but as always - seek professional advice.
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Reply: 1.1
From: Patrick Bruadair

Thanks for the feedback GerardC. Thought it was too good to be true!

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Reply: 2
From: Dale Gatherum-Goss


Yes, CGT does apply. However, you should know a couple of things. If you can show a higher proportion of costs to the properties sold then you can legitimately reduce the gains made.

Furthermore, you deduct the costs of buying and selling to reduce the CGT.

Also, you can take 1/2 of the gain as exempt from tax.


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