CGT When does it start??

[OBODE]

Hi Everyone,

Hopefully someone can help me,

I purchased a block of land in september and will soon sign a contract to start building, this will be a investment, I would like to sell it off the plan, I want to make sure I don't get slugged the cgt on the full 100%, so I would like to know when the 12 month's starts, eg the sigining of the contract when I purchased the block or when the I recieve the certificate of occupancy or other, I'm getting varied answers at the moment,


thanks for reading

Simoun

 

[jrc]

Seems to me that you are carrying out a business venture so in that case you will be taxed on your profit. Bear in mind GST too as it will be the sale of a new house.

 

[Jonathon]

The good news is that on the facts you've stated above, you won't pay a cent of capital gains tax.

The bad news is that based on thse same facts, you'll pay income tax at your marginal rates, with no 50% deduction. This is likely to leave you with a significantly higher tax bill.

You'll also have to give the ATO 1/11th of the selling price as GST, although you should investigate the margin scheme.

This is because you're not building an investment property, you're building trading stock, to sell. This is a business, not an investment, so the profit you make is taxed on revenue account, not capital account.

If you were building the property to rent out, then it would be an investment and capital gains rules would apply, but of course as you'd be renting it out and not selling it, there'd be no capital gain at all.

What did your accountant advise you before you started? Are you doing this under your own name or in a trust?

Cheers
Jonathon

 

[OBODE]

Hi Guys,

thanks for the replies, I initially intended to keep the place as a rental, due to a boom in the area, and cash flow I thought I might sell it, the property was brought under my personal name..

So is it more beneficial if I rent the place out for a period of time, and how long would I have to rent it out for....

This is all new to me, and I'm on a huge learning curve so any advise would be good

thanks again

 

[Jonathon]

If you're going to rent it out once built, then generally speaking, you'll treat it as a normal negatively geared investment property. You can claim interest cost as a general deduction from the point you bought the land, as long as your intention is to build a rental property without delay. (say within 1-2 years)

If you hold it for 5 years post construction and then sell it, it'll be treated as a capital gain with no GST payable. However if you sell it within 5 years, then it'll come down to your original intention, i.e. what yout intention is right now.

This is a very complex area, and the ATO have recently come out with new guidance about properties that are built with mixed intentions, so you really need to sit down with a property-savvy accountant to discuss your options and the tax limitations.

The tax implications between the two different options are enormous, so I'd strongly advise you to get professional advice.