My question relates to the tax treatment of this proposed arrangement.
The facts:
- I am a fulltime employee not in the building industry
- I have no building or development experience
- I intend to buy a blue-chip property with an old house for just over $1m inc costs in my personal name.
- The old house is dilapidated and would need repairs to be safe to tenant.
- There are plans and permits to build 2 townhouses on the land.
My plan:
- Buy and live in for a few months (for PPOR exemption).
- Move out, demolish
- Build 2 townhouses, need to borrow a significant amount to do it
- Live in townhouse A, rent townhouse B
- Re-evaluate finances after 1 year. If I'm struggling due to interest costs then sell PPOR (hopefully CGT free due to PPOR exemption and hopefully this is not considered ordinary income).
- Then move into Townhouse B. Claim PPOR on this. Live there if I can afford to or move out and rent it. Eventually sell (maybe 2-5 year timeframe, maybe longer).
I like this plan as it appears to me that:
1) Profits from Townhouse A are tax free (PPOR exemption)
2) Profits from eventual sale of Townhouse B will be subject to CGT with a partial CGT exemption and 50% discount for holding more than 12 months. This would make the effective tax rate for the whole development to be very low.
Does this seem reasonable? What concerns me is I might be forced to sell sooner rather than later due to the size of my debts attached. How long would I need to hold/rent/live in both townhouses for before I could look at changing purpose and selling without it becoming income?
Thank you for helping me.
The facts:
- I am a fulltime employee not in the building industry
- I have no building or development experience
- I intend to buy a blue-chip property with an old house for just over $1m inc costs in my personal name.
- The old house is dilapidated and would need repairs to be safe to tenant.
- There are plans and permits to build 2 townhouses on the land.
My plan:
- Buy and live in for a few months (for PPOR exemption).
- Move out, demolish
- Build 2 townhouses, need to borrow a significant amount to do it
- Live in townhouse A, rent townhouse B
- Re-evaluate finances after 1 year. If I'm struggling due to interest costs then sell PPOR (hopefully CGT free due to PPOR exemption and hopefully this is not considered ordinary income).
- Then move into Townhouse B. Claim PPOR on this. Live there if I can afford to or move out and rent it. Eventually sell (maybe 2-5 year timeframe, maybe longer).
I like this plan as it appears to me that:
1) Profits from Townhouse A are tax free (PPOR exemption)
2) Profits from eventual sale of Townhouse B will be subject to CGT with a partial CGT exemption and 50% discount for holding more than 12 months. This would make the effective tax rate for the whole development to be very low.
Does this seem reasonable? What concerns me is I might be forced to sell sooner rather than later due to the size of my debts attached. How long would I need to hold/rent/live in both townhouses for before I could look at changing purpose and selling without it becoming income?
Thank you for helping me.