Turning PPOR into development
- Thread starter hematite
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I've always wanted to know the answer to this.
I think it has something to do with you taking a valuation of the property before demolition and construction and the CGT is on that valuation to the end valuation upon sale at completion.
So I think it's:
1. Buy PPOR for $400k
2. Value PPOR at $500k when you are ready to develop
3. CGT is from $500k not $400k
I could be totally wrong though.
This is generally how it would work, but it would probably be just income tax if developing.
There is a good PDF document on the Bantacs website 'how not to be a property developer'.
You would have to apportion.
What a great bloody article!!! Thank you!
I'm looking at a similar situation and have read through that pdf 'How not to be a property developer'. It's a bit dry but well worth a read.
My understanding of it is that if you are 'merely realising an asset' you will be up for CGT (and no GST) as opposed to it being treated as revenue for the block you sell that is not your new PPOR, but it does come back to what your intentions were when you bought the block. The other thing I understood is that the cost base for the portion that will not become your PPOR goes right back to the day you bought it so if you bought the block say 10 years ago then this needs to be taken into account as the capital gain could be significant. Again this is my interpretation so best to have a read through it.
Hmmm. Not quite. Your intentions when you buy the block may be a factor but intent can change. The paper quoted is a real problem as you cant choose not to be a developer if you are a developer. First problem is tax law doesnt explain what a developer is. I receive heaps of calls from people who describe themselves as a developer when all they are doing is building an IP. Developing is about the sale. A far better title would be "Building with an intention to make a profit".
That's the only intention needed sometimes.
The key issue is seeking personal tax advice. If you build with intent to sell some within five years then there could likely be GST issues. And a CGT problem (the problem is it might not be subject to CGT). Then there can be a myriad of issues. Margin scheme, valuation issues, apportionment and accounting for GST even when you may not be registered !!
Yes that's correct. It depends if you trigger a CGT event. For example if the land become trading stock (ie to build three villas and sell two) then you do have a CGT trigger as you describe. Then you may also have a ordinary income issue as well on the sale of the other two. And even a GST issue too.
But if you hold it all its all different again.
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