CGT implications on land sale

[andrewdc]

Hi all,

I will be checking with my accountant but wanted to get some info from you so I ask him some intelligent questions.

I bought an IP in 2005 worth $300K. I have gone through planning and am in the process of subdividing the rear of the property. I am thinking of selling the rear (land only) and expect I will get $250K for the land.

What are the tax implications of doing this? Will I be eligible for the 50% CGT discount or will I pay the full wack?.

I have not applied for the margin scheme as yet and the trust I purchased the property in is not registered for GST (yet) ...and I'm not sure how these variables influence the decision making process.

If I wanted to sell the land as soon (or close to) the subdivision process is complete how would you recommend I should go about legitamately minimising any tax?

Thanks for your time.

Andrewdc

 

[ozmale42]

You'll need to obtain a valuation of each block(s) in order to make a determination as to the apportionment of the cost base relevant to the parcel of land sold.

For arguments sake, assuming there are only 2 blocks and the values for both blocks are the same, you'll need to deduct an amount equal to 50% of the purchase price (50% x $300k) as well as 50% of any other capital costs you have incurred - (i.e 50% of the stamp duty when you purchased the property in 2005 and 50% of any fees incurred relating to the subdivision)

Whatever's left after deducting the cost base from the sale proceeds as described above you will then reduce that by half as you are entitled to the 50% exemption given that you've owned it for more than a year.

Subdivision of land in itself does not trigger a CGT liability, it only occurs once there is a disposal of any part of the land.

 

[andrewdc]

Thanks for your response.

You touched on a point that I was not sure about...Even though I have owned the property for longer than 12 months once I subdivide the land do I need to "hold" it for 12 months to get the CGT discount or does the discount apply based on the when the original property was purchased

 

[Rob G.]

Thanks for your response.

You touched on a point that I was not sure about...Even though I have owned the property for longer than 12 months once I subdivide the land do I need to "hold" it for 12 months to get the CGT discount or does the discount apply based on the when the original property was purchased

Usually from the date you signed the contract to acquire the original land.

Cheers,

Rob

 

[Mry]

As long as you intended to operate the property you purchased as an investment property and have done so for the entire period of ownership, you will not need to register for GST. Sales done on capital account do not count towards the GST registration threshold. If you do register, or are forced to register, you will be required to charge GST on sale.