How do i calc CGT on subdivision?

[D Money]

Hi guys,

I am trying to do "what if" scenarios on a property to see what potential profit would be achieved If i subdivide. Need to work out what CGT would be paid if I subdivide and sell .


Facts are:

• Land size = 800m2 with 1 freestanding dwelling on it.
• Wish to subdivide, creating two 400m2 blocks, one with the house and the other a vacant block.
• I then wish to sell the vacant 400m2 block only
• original land with house purchased 5 years ago for $293,000.
• Assume sale price of vacant block less selling costs = $300,000
• Assume my tax bracket is 42%

How do I calculate CGT?
ie surely the cost base of the vacant block is not equal to the full $293k??
is the cost base on 50% of the $293k given i am subdividing it 50% or even less given that the house and land still remains which would be of greater value?

thanks

 

[RPI]

Need a valuation and get the valuer to do a split on the value. They way be able to show calcs for what the block was worth at time of purchase

 

[D Money]

Need a valuation and get the valuer to do a split on the value. They way be able to show calcs for what the block was worth at time of purchase

Hi RPI,

Many thanks for your reply. so based on what you are saying, if the valuer said that the 400m2 block was worth $120k at time of purchase and i sold it for $300k today then the rough calc for cost base would be $300k - $120k = $180k. is this correct?

I wonder if the Ato would need an independent professional valuation done or would accept one from myself (however the valuation may suffer from a little bias)

 

[Terryw]

I think you would need a valuation of the land component at the time of purchase, and then apportion this between the 2 blocks. This would give you the cost base for the second block from which you could add costs associated with the sub-division.

If the 2nd block was worth $120,000 at the time of purchase then you can add to this the costs association with the sub-division such as plans, legals etc, say $20,000. This would give the cost base as $140,000.

If you sell for $300,000 then the capital gain would be $160,000. From this you may get the 50% CGT discount = $80,000 and this would be added to your other income from the year. Tax would be around 42% of this

I am not sure how the 50% CGT discount would be calculated, ie from when. And I am not sure if you could add interest and rates etc to your cost base.

 

[D Money]

Thanks - so I guess the consensus is that i need an independent valuer and cant do the valuation myself?

 

[Aulyna]

Thanks - so I guess the consensus is that i need an independent valuer and cant do the valuation myself?

How can you evaluate it yourself? I do not think so.

 

[D Money]

How can you evaluate it yourself? I do not think so.

Hi Alunya,

I was thinking that you could use the same methodology as the valuer (such as using the UIV from council valuations or $/m2 for the area etc) , document your assumptions and then come to a $ value conclusion.

In case your audited by the ATO, you could pull out your report with all your assumptions and conclusions etc.

Property valuations are very subjective anyway and depending on which property is selected by the valuer to compare with yours, your valuation can be substantially higher or lower. This subjectiveness can mean the difference of tens of thousands in equity.

The objective of the excercise would be to minimise the CGT, but do so in such a way that it is legal and justifiable.

However, if the law states that the valuation must be done by an independent valuer then so be it. Does anyone with accounting / legal experience know if this is an actual requirement?

 

[Aulyna]

Hi D Money,

Any news/progress with your subdivision?

 

[D Money]

Hi - not doing anything at the moment, just doing some spreadsheet scenarios. Also potentially looking at developing scenarios to see if the returns are worth the risk

cheers

 

[Aaron_C]

Just use a professional valuer. Then the ATO can't come back and bite you

 

[Aulyna]

Hi - not doing anything at the moment, just doing some spreadsheet scenarios. Also potentially looking at developing scenarios to see if the returns are worth the risk

cheers

Good idea.

Is it better to build a new house on the land and sell it? more profit?

 

[D Money]

Good idea.

Is it better to build a new house on the land and sell it? more profit?

Yes my SS is showing more profit from developing than from just subdividing and selling but obviously more risk is involved in developing.

Also I think you need at least 30% deposit for a construction loan (70% LVR) so it looks like you need to have some serious cash behind you before you dip your toes into developing.

cheers

 

[Aulyna]

I built a dual occ last year, but the title could not be separated.... did not aware the 70% LVR at all, as the loan was founded before the building start with my PPOR as security ; -)