CGT on PPOR Block after development.

[albanga]

Hey All,
I was speaking to a friend yesterday who was looking at subdividing their PPOR and developing a dwelling at the rear. They said what they were hoping to do is build it and just prior to completion sell their PPOR and move into the new dwelling for 1 year and then sell again.
There thought process is that they will be CGT exempt when they sell their current PPOR but also CGT exempt on the new dwelling after 1 year.

I asked if they had sought specific tax advice on this which they said their accountant had confirmed this was fine.

Now I could be wrong but I said to them I was not sure they would be. There existing PPOR they would be exempt no question (lived there for 5 years) but from my understanding if they then moved into the new dwelling and sold 1 year later, the ATO will look at this as there intention was always profit driven and they would be liable for CGT?

Also it was their accountant who advised 1 year. Again I am no guru but I thought the one year rule was simply for the 50% discount on a property. Claiming a PPOR the ATO never specifies a timeframe but more so rules around what is required (mail delivered for example).

 

[Rob G.]

Not necessarily a profit making scheme, could be a downsize.

However, there will be CGT when the new main residence is sold.

The land underneath the new dwelling was not disposed of with the original main residence and so will not qualify for the CGT exemption on a pro rata basis from acquisition up until the day the new dwelling is occupied as a main residence.

There is no "one year rule" for establishing a main residence. It is a question of fact.

Suggest your friend finds an accountant who understands the tax laws in respect of their affairs.

 

[Paul@PFI]

Also the GST issue needs review and advice. Instead of seeking to bypass tax it can be cheaper to face it head on and plan it down. That way they may be able to sell the property using a method that lowers the GST and the GST on the build can be claimed.

Then the costs after GST and the sale price after GST are used to calculate profits.

Early advice will save a load of problems.

 

[albanga]

Also the GST issue needs review and advice. Instead of seeking to bypass tax it can be cheaper to face it head on and plan it down. That way they may be able to sell the property using a method that lowers the GST and the GST on the build can be claimed.

Then the costs after GST and the sale price after GST are used to calculate profits.

Early advice will save a load of problems.

Hi Paul,
I have forwarded them your contact details as this was my exact advice as well. Expect a call in the coming week.