CGT when subdividing

[Belu]

Hi all,

Just a quick one hopefully. In the following hypothetical scenario do I qualify for the 50% CGT discount at all or in part please?

Month 1: Buy house on a large block
Month 6 - 9: Subdivide 5 unit sites off the back of the front block
Month 14: Sell all 6 sites.

So sold is a house on a smaller block, and 5 blocks of land. From purchase to sale is > 12 months but from subdivision to sale is < 12 months. Wondering if the CGT discount applies please?

Cheers

Ben

 

[Aaron_C]

I think it depends whether you are in the business of property development/sub-dividing. If you are then the trading-stock provisions apply rather than capital gains.

 

[Mry]

Is your intention on purchase to subdivide and sell? If yes, its income so capital gains doesn't apply so no discount will be available.

Capital gains applies where you intend or actually use the property for either private purposes or for producing income through the use of the asset itself (eg rent).

 

[knightm]

when i wanted to understand what is investing and what is developing and how are the 2 taxed i found this particularly helpful

http://www.bantacs.com.au/booklets/How_Not_To_Be_A_Developer_Booklet.pdf

 

[DrRudi]

Is your intention on purchase to subdivide and sell? If yes, its income so capital gains doesn't apply so no discount will be available.

Capital gains applies where you intend or actually use the property for either private purposes or for producing income through the use of the asset itself (eg rent).

If it is investing and a one-off event, on a small scale and not Belu's main field of business, why would this be income? Is there a particular ruling stating this (or are you an agent for the ATO )?

To the OP - something like this might help http://www.ato.gov.au/youth/content.aspx?doc=/content/66884.htm

 

[Mry]

If it is investing and a one-off event, on a small scale and not Belu's main field of business, why would this be income? Is there a particular ruling stating this (or are you an agent for the ATO )?

Someone asked for a ruling?
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR923/NAT/ATO/00001

There are typically 3 ways to tax property transactions. Mere realisation, Profit making venture and Business.

Mere Realisations are taxed as capital gains. Examples include a farmer selling lots off his land gradually with limited activities involved (Casimaty), the purchase of land intended to be used as a home, but subsequently sold when plans changed and the purchase of a residential rental property that is subsequently resold for a profit.

Profit making ventures are typically isolated transactions and are taxed as income. Examples include a farmer actively involved in selling large amounts of lots subdivided from his old farmland (Statham), or the purchase of land where the intention is to resell for a profit.