Redevelop – CGT issue



From: Todd Dick


I would like to thank all of those (you know who you are) who provide their knowledge on issues in here on a daily base. I think I can express from all who visit this site and participate – how much we appreciate the information and various debates you guys and gals contribute in here.

My question:

If I was to buy a property with purpose as a Owner Occupier and immediately knock down the existing house on the property (not even move in) to build a dual-occupancy - would I have to pay capital gain tax on selling either of the two?

Scenario 1
If side 1 was for investment and side 2 was to live in – if I immediately sold side 2 without even moving in, and kept side 1 as a rental, would I pay CGT on side 2?

I am sure there may be some other Scenarios that might work better than what I have listed above that might get me out of CGT. What I am trying to do is buy a property with some land (not big enough to subdivide), knock down the existing house (very old and rundown), whack up a dual occupancy, sell one immediately following construction to help offset some of the costs to build and leave the other as an investment.

Anyone have any suggestions on how the above could be worked out to not pay CGT? Any other suggestion on what might be a good investment set-up to that above?

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Reply: 1
From: Paul Zagoridis

Hi Todd

Unfortunately I am not going to answer your questions. But your post triggered an need to mount a soap box. NOTE this is not aimed personally at you Todd, merely general overbearing, long-winded opinion.

If your are becoming a builder/developer you absolutely must have a few things organised. As a bare minimum you NEED an accountant and lawyer on your side who agree with your plan and world-view.

Without them you are providing the next cheap mortgagee sale in your area.

CGT is intimately tied in with your risk management and holding structure. This is what your accountant is for.

Paul Zag
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Reply: 1.1
From: Todd Dick

Thanks Paul

I Paul

As I am from the States, is the accountant over here, the all of end-all. That is, if I can convenience my accountant for example on scenario 1 above – am I tax free liable. If my account agreed with scenario 1 – and later I was audited by the ATO who didn’t agree – could I just shrug my shoulders and say I ran it past my account and he/she was happy and advised accordingly. How far do I need to go (accountant, Lawyer, ATO) with the above example before undertaking it and ensuring once actioned – I am not tax liable sometime down the track?
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Re: Redevelop CGT issue

Reply: 1.1.1
From: Terry Avery


The ATO does not accept advice of anyone as an excuse. Their relationship is
with you the taxpayer. A good accountant should steer you clear of problems
with the ATO however. If you do get bad advice then after the ATO hit you
with penalties your only recourse would be to sue the accountant for
professional negligence.
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Reply: 2
From: Dale Gatherum-Goss


Actually, your questions are more complex than they seem. Before you can say yes or no to CGT, you should consider what your "business" will be.

That is, if you do this sort of thing all the time, the income will be treated as ordinary business income.

If you do from time to time but not regularly, it will be treated as a CGT issue.

I agree with Paul, you should seek specific advice on this issue given your specific circumstances and goals.

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Reply: 2.1
From: Juzz O'K

Was just discussing this topic earlier today.
The person I was talking to has already done
this. His structure was not a company.
He says that this is a grey area in the taxation law. Nothing he can find being an accountant himself specifically specifies this situation.
The CGT he paid was on capital improved
value when selling compared to capital
improved value from subdivision date, only because he still lives in one of the units as his principal place of residence.
Better check the legalities yourself as well.

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