Selling PPOR after subdivision, CGT??

[Blair007]

Hi all

So contemplating selling ppor midway this year to fund some other
Investments.
Ppor was first purchase over a year ago for 425,000. Since purchasing it I have subdivided it and retain the front house while building at the back. The back house will be built around the same time I sell the front will either move into the new one or rent it out and then rent somewhere myself. The back one will prob become my ppor though once the front is sold.

When I sell the front I'm likely to get more than the 425,000 I paid for it.
Is there likely to be any tax incurred because I've subdivided or is this okay?

Also if I make my new ppor the back house even if I decide to rent it out will the be any problems for this?

Thanks in advance!

Cheers Blair

 

[perthguy]

This won't answer all your questions, but it is a good starting point.

http://www.yourinvestmentpropertyma...isting-home-into-a-rental-property-80818.aspx

 

[Terry_w]

Hi all

So contemplating selling ppor midway this year to fund some other
Investments.
Ppor was first purchase over a year ago for 425,000. Since purchasing it I have subdivided it and retain the front house while building at the back. The back house will be built around the same time I sell the front will either move into the new one or rent it out and then rent somewhere myself. The back one will prob become my ppor though once the front is sold.

When I sell the front I'm likely to get more than the 425,000 I paid for it.
Is there likely to be any tax incurred because I've subdivided or is this okay?

Also if I make my new ppor the back house even if I decide to rent it out will the be any problems for this?

Thanks in advance!

Cheers Blair

Yes, likely to be taxed. GST too.

 

[Blair007]

Yes, likely to be taxed. GST too.

That seems strange I was thinking I would be okay just wanted someone to confirm.

I mean most of the time the original house would end up losing value once subdivision is complete considering smaller land component which I'm sure I so the allowed to offset the loss against my income if that was the case.
And I thought GST was for developers/property traders. I'm far from that considering I only have my ppor and the ip I'm building at back.

 

[perthguy]

I think there are two issues: the front house (PPoR) and back house (IP)

Selling the PPoR shouldn't generally result in a capital gain liability or GST.

http://www.quinns.com.au/Editorials/YIP26-CGT-on-subdivided-PPOR.pdf

In terms of the back house becoming your PPoR, my understanding is that you have to move in as soon as pracitable after completion for it to be considered your main residence for tax purposes. The article I linked to states:

'move into the dwelling as soon as practical after it is finished, and continue to use the dwelling as your main residence for at least three months after it becomes your main residence'

I don't know about that three month thing. I have not heard that before.

If you keep the back house for at least 5 years then you should not have to pay GST when you sell. But if you build it and sell within 5 years you might.

It's complicated so worth discussing with a tax professional.

http://www.bantacs.com.au/QandA/index.php?xq=218

 

[Blair007]

I think there are two issues: the front house (PPoR) and back house (IP)

Selling the PPoR shouldn't generally result in a capital gain liability or GST.

http://www.quinns.com.au/Editorials/YIP26-CGT-on-subdivided-PPOR.pdf

In terms of the back house becoming your PPoR, my understanding is that you have to move in as soon as pracitable after completion for it to be considered your main residence for tax purposes. The article I linked to states:

'move into the dwelling as soon as practical after it is finished, and continue to use the dwelling as your main residence for at least three months after it becomes your main residence'

I don't know about that three month thing. I have not heard that before.

If you keep the back house for at least 5 years then you should not have to pay GST when you sell. But if you build it and sell within 5 years you might.

It's complicated so worth discussing with a tax professional.

http://www.bantacs.com.au/QandA/index.php?xq=218

Thanks perth guy

Yeh I have to I know. HD_ace mentioned an accountant he uses in a post to someone a while ago so I was going to ask him this Saturday at the Perth meetup. Only until just recently has my tax situation start to become more complex.

But yeh main concern is if my current ppor is tax free, fingers crossed!

Cheers for the links too, on my phone now but I'll read them tonight

 

[Blair007]

Just spoke to the ATO this morning and no capital gains tax or GST would be applicable for myself or others in this situation.

 

[Terry_w]

Just spoke to the ATO this morning and no capital gains tax or GST would be applicable for myself or others in this situation.

Make sure you write down the Officer's name, time of call and summary in your diary. Even then you cannot rely on this so seek your own tax advice.

 

[wylie]

Just spoke to the ATO this morning and no capital gains tax or GST would be applicable for myself or others in this situation.

Make sure you write down the Officer's name, time of call and summary in your diary. Even then you cannot rely on this so seek your own tax advice.

I'd get it in writing, ie. ask for a ruling.

 

[Rob G.]

Based upon your limited disclosure of your relevant facts:

No CGT on old PPOR disposed of if you have used it as your exempt main residence throughout.

Your "new PPOR" will not be fully exempt.

The land under the new dwelling will not have an exemption for the years up to the point the new dwelling actually becomes your PPOR. The land was not disposed of as part of your old main residence so it does not get a main residence exemption even though it is now applied to use as part of your new main residence. A main residence exemption can only apply to a dwelling - adjacent land must be used and disposed of part and parcel to the dwelling

Your new dwelling itself won't be exempt during the subdivision and building phase because you are actually occupying and electing to treat your old PPOR as your main residence up to the days sold (however, there may be a six month overlap when you actually move into the new completed dwelling and have two residences).

If you actually occupy the new dwelling as a PPOR and/or residentially rent it for at least 5 years then no GST adjustment is necessary.

So the statement "There will be no CGT" really means "No capital gain with respect to the old dwelling under certain conditions".

However, there will definitely be CGT issues with the new dwelling even if it is occupied as soon as practicable and used throughout as your main residence.

Of course, there may be undisclosed details that make all the above inappropriate or irrelevant.

 

[Blair007]

Cheers rob!