How is CGT worked out on a reconfigured block?

[wylie]

I'm doing some "what if" scenarios on our double block... keep, sell as a development site, sell individually, reconfigure the block and sell the middle vacant battleaxe block, do nothing .

One thing I cannot fathom is how we would be taxed if we reconfigure the two blocks into three, and sell off the middle block.

I can give accurate figures but it is the formula I am curious about. How is the cost base arrived at for a block of land that is only just being created and which (if valued immediately) would mean the three blocks are worth more than just the two as they are now.

Are the two existing house/land blocks divided by three to arrive at a figure over which capital gains tax will be paid? Is there some formula the ATO uses?

Do we get valuers to prove what the houses on the large blocks are worth now, compared to what they are worth on a smaller block? And for that same valuer to give a value for two existing large blocks, and another value for two smaller blocks and one newly created building block?

I can call the ATO but I fear I might not get an easy answer. I'd love to hear from someone who has done this and knows how the arrive at a cost base figure on which to calculate the capital gains tax for the newly created block and for the now much smaller blocks with the houses on them.

 

[RPI]

Hi Wylie

Its a complex area and I did take a subject called taxation of capital gains in my law masters, but I haven't done anything with it for a while and normally defer to an accountant. However will give you my best shot, forgive me if I am wrong as it is just to get you start thinking before someone more learned comes along.
.

A subdivision of land is not a CGT event, it is the disposal of the land that triggers the CGT event.

When you do the subdivision it is necessary to determine the cost base cost base and then apportion that to each of the assets.

So using completely arbitrary figures, say that the original blocks cost you $600K including costs, you spent $50 k on subdivision driveways etc that gives you $650k. That is your overall cost base.

If at the time of subdivision the value of the 2 blocks with houses on it were $600 K each and $400k for the block of land you have a total asset of $1.6m. Apportioning the 3 blocks then you have the house blocks each worth $600k/$1.6m or 37.5% of the asset each and the vacant dirt as 25%. Now if we go back to your original costs at time of SD
of $650k then 25% of that =$162.5K.

So Base cost for that block alone is $162.5k add selling costs etc at $20k and you get $182.5k $400 -$182.5k = $217.5k Capital gain. 50% discount means you have $108,750 discounted capital gain. assume it as owned 50:50 with husband and you are going to have to add $54,375 to your taxable income in the year you sell.
If neither of you have an income and there are no deductions then you are going to pay $10348 tax each. IF you were earning $50k each with no deductions total tax would be $29848 each. with approx $21k of that being CGT on the house and the $8,800 being normal tax.

So very much depends on your other income. As I said its rough and others may correct me but it should provide you with a start

D

 

[Terryw]

I agree that it is bloody complex and the ATO couldn't really give an answer.

Is the land pre CGT? If it so then developing it would change this.
Has it ever been a main residence?
Is it adjacement to a main residence? (not necessarily next to)?

If yes to any of these it gets more complex.

You might also want to check out the booklets on www.bantacs.com.au

 

[wylie]

Thanks for those replies, you two .

Neither block is pre-GST, never been a PPOR either.

One day we could sell to a developer, but we will be screwed down on price and pay a huge amount of tax in one financial year (unless a developer is willing to sign for one block on 30 June and the other on 1 July to spread it over two years).

I'm thinking that one option is to reconfigure into three, sell off the vacant lot one year, sell one house another year and repeat. Even if we could get more from a developer (maybe... maybe not) the saving of tax by spreading the sale over three financial years would probably offset the extra we could get. But developers don't buy with emotion and we could well get more from someone who just really wants a nice queenslander and/or a vacant block where they are quite hard to find.

Best case scenario is to hold it long term, but I hat to be paying interest on something that is not increasing in value, and might not for a while.

Decisions... decisions...