Property Development & CGT liability

[charttv]

Say I am going to purchase a block of land in my name (no trusts or company structure) and build two dwellings on it.

This would be in addition to a day job and would be a one off for the time being.

the transaction looks like:

300k land purchase
10k land purchase costs (stamps, legals, conveyancing, etc)
600k build cost
910k total (land & construction)

If I sell one of the dwellings during construction, how is capital gains tax calculated?

Cost base = proportion of the land the sold dwelling occupies (let's say 50% in this scenario) 50% x 300k + 50% of land purchase costs (5k) & 50% of the build cost.

150k land
5k land purchase
300k build
455k Total

let's say the sale price is 550k and the property is sold before completion.

550k sale
-455k cost base
=95k capital gain

The land would be owned for less than 12 months so does this mean there would be no 50% discount?

Is the capital gain considered taxable income and added to any other taxable income earned in that financial year?

 

[coastymike]

Sounds like profit from an isolated transaction myers case as opposed to mere realisation of an asset.

Capital gains tax wont apply so the cgt discount will be nil.

You will also need to factor gst on sale into your calcs.

 

[Ausprop]

CGT wouldn't apply as this would be just normal income. you would also need to register for GST and remit 1/11th (roughly) of the sale price

 

[charttv]

thanks for your responses.

 

[charttv]

How do you work out the cost of a property on a multi-dwelling site?

If you build two properties and sell one how do you determine the land cost component of the one you sold? If I have a 284 sqm block and sell one of the properties on 140sqm of that do I calculate 140/284 x purchase price of land including costs (stamp duty, conveyancing costs, etc?)

Do I then take that amount and add it to the build cost for that dwelling?

 

[speary]

That sounds like a fairly reasonable and appropriate way to me.

 

[g.field13]

sorry to hijack
in this case how do you work out gst 1/11 of sale price
is that the profit or margin
or is that the whole sale price
eg buy property 600k
develop 700k
= 1,300,000
+hen sell 1,800,000

so profit of 500,000 would it be 1/11 of 500,000
or 1/11 of 1,800,000
cheers

 

[coastymike]

It depends whether you will be electing to use the margin scheme or not.

 

[Sleekman]

Sorry to hi-jack too but my accountant has led me to believe that I would be paying 1/11 gst on my profits (triplex development) and 50% of my profits is assessable for CGT? margin scheme was elected.
eg 200k profit = 20k gst
180k/2 = 90k liable for CGT which is ontop of my personal income
Does this sound right? it seems like the responses from this thread dictate that its either GST or CGT and not both.

 

[Terry_w]

Sorry to hi-jack too but my accountant has led me to believe that I would be paying 1/11 gst on my profits (triplex development) and 50% of my profits is assessable for CGT? margin scheme was elected.
eg 200k profit = 20k gst
180k/2 = 90k liable for CGT which is ontop of my personal income
Does this sound right? it seems like the responses from this thread dictate that its either GST or CGT and not both.

Depends on the circumstances. Looks like you are doing a venture which could be taxed as income no 50% CGT deduction.

 

[LoneWolf]

Guys, for development, do you need a company title or can you register it under yourself?

Also, solicitor is more appropriate compared to a convayancer?

 

[Terry_w]

Guys, for development, do you need a company title or can you register it under yourself?

Also, solicitor is more appropriate compared to a convayancer?

you can do it yourself, but should you?

A solicitor is always more appropriate for legal advice and property related transactions.

 

[LoneWolf]

I dont mean building the the property. I meant that if I buy a block of land under my name and then go develop the site, this site can be registered to an individual rather then been on a company title

 

[LoneWolf]

Also the loan itself would be considered commercial loan?

 

[Aaron_C]

I dont mean building the the property. I meant that if I buy a block of land under my name and then go develop the site, this site can be registered to an individual rather then been on a company title

Yes of course it can be bought in a company name (And is recommended).

 

[Aaron_C]

Also the loan itself would be considered commercial loan?

Depends on number of dwellings. Up to 4 can be considered a normal residential loan but above that it is definitely commercial.

 

[Sleekman]

Depends on the circumstances. Looks like you are doing a venture which could be taxed as income no 50% CGT deduction.

Thanks for that Terry
It was originally a IP for 2 years prior to being developed.

I'm assuming if it was a vacant lot I wouldn't qualify for the 50% CGT deduction then?

 

[Terry_w]

Thanks for that Terry
It was originally a IP for 2 years prior to being developed.

I'm assuming if it was a vacant lot I wouldn't qualify for the 50% CGT deduction then?

Vacant land could qualify, depending...