Duplex CGT confusion!

Ljaseredpanda on 14/03/2017 - 16:05
Last edited 14/03/2017 - 16:27 by 1 other user

Hi Guys

I am building a Duplex in sydney and I'm trying to understand what my CGT will look like. I'm also trying to minimise my CGT too.

So 3 part question:

  1. How much CGT % will occur based on my scenario (below)
  2. Is there a way I can minimise my CGT or get fully exempt?
  3. CGT occurs over the period of a purchase and then sale, but when I subdivide does the period start from scratch?

Details:

  • Oct 2010 bought the house and moved in - $450k
  • Aug 2013 moved out, and rented it out, I moved back home with the parents
  • Jan 2017, tenants moved out, construction begins for the Duplex
  • Nov 2017, completion of Duplex and will try and sell 1, expected $800-900k

My accountant is working on this too, but its not so straight forward since he isnt versed with subdivision CGT. So was hoping someone here has been through this process. I am keen to sell it so I can lower my loan, however depending on the tax outcome I'm ok to move in for a period of time and then sell or rent then move in and then sell.

Thanks
Jase

Financial

Comments

  • MITM on 14/03/2017 - 16:39
    -1

    If you move in after completion and remain for >12 months - no CGT would apply.
    So, calculate 12 months additional interest payments vs CGT (50% discounted)
    Nice flip BTW.

    • jaseredpanda on 15/03/2017 - 09:37

      thanks! are you sure the 12 months period works from scratch when i subdivide vs when i first purchased the land/house?

    • squeeb on 15/03/2017 - 16:59

      Absolutely incorrect.

      • jaseredpanda on 16/03/2017 - 14:46

        hey squeeb, whats your experience been with duplexes?

  • mick123 on 14/03/2017 - 16:53

    How much did it cost to:
    -knockdown
    -build both duplexes?

    • jaseredpanda on 15/03/2017 - 09:37

      about 700k

      • Ash-Say on 16/03/2017 - 02:01

        Just curious:

        What was original land size?
        Was it easy to get subdivision approval from council?

        • jaseredpanda on 17/03/2017 - 10:05

          about 550, 20 m frontage

          yeh very easy

  • garetz on 14/03/2017 - 17:54
    +8

    How about you find an account who is versed in subdivision CGT. I wouldnt depend on advice from here if i was you.

  • mskeggs on 14/03/2017 - 18:36
    +4

    My accountant is working on this too, but its not so straight forward since he isnt versed with subdivision CGT.

    Find a new accountant.

  • Wq Orz on 14/03/2017 - 18:52
    +1

    Mere Realisation is what you are looking for, situation varies from case to case, it would be to wise to speak someone specialised in CGT instead of tax agent in general.

  • bemybubble on 14/03/2017 - 21:16
    +2

    This is not advice and you should always seek professional guidance.

    If you had a profit making objective such as subdividing, building and immediately selling to make a profit. Your isolated build could be seen to be a profit making venture and be on revenue account and even worse, be subject to GST. The longer you hold the property. The more chance it may be on capital account. But once again this is not advice nor should be taken as advice.

    I highly suggest you seek professional guidance as this on face value seems more than what you think. And yes as others said. You need a new accountant…

  • thechemist on 14/03/2017 - 22:07
    +1

    You can sell one CGT free (as you only had rented it out for less than 6 years before hand) if you declare it as your primary residence (PPR). If you sold the second one in a years time (to get 50% CGT discount). The income is 850K (take the middle number) less cost base of 225K (1/2 of the land) + construction cost (300K for one dwelling) + other cost 50K (e.g. stamp duty paid at purchase, agent fee etc.).

    Total cost base if 575K so profit of $275K so with 50% discount then you get taxed on 138K. So tax is your applicable marginal rate on 138K so if you are on top bracket then it would be about 65K in tax and 73K profit

    So the first one CGT free you made 275K (PPR) plus 73K

    My advice
    Unless you really want to live in the duplex and at that location I would recommend you to sell the block as it is. You make no money from building and carry a lot of risk (builder goes bankrupt, construction loans are treated differently by bank). You will be financially better off if you can sell the block for over $850K and no building hassles and no CGT as PPR

    • jaseredpanda on 15/03/2017 - 10:00

      Wow thanks, very detailed. I have thought to myself with selling as is, but I do want to live in one. Since Sydney has gone insane with pricing and I've been lucky to have a place.

      I'm not sure what constitutes as PPR as proof? because i need that as proof for the 6 year ruling.

      • thechemist on 16/03/2017 - 00:04
        +1

        water bill, gas bill, electoral role etc.

        • jaseredpanda on 16/03/2017 - 14:50

          Do you know how I can get proof of electoral role?

        • thechemist on 16/03/2017 - 22:01

          with Australian Electrol Commission (AEC) they usually send an email to confirm when your details have been changed when you change in online

          They don't tell you what its about but if ATO speaks to AEC they will know your electoral role details over the years

  • Steptoe on 16/03/2017 - 20:46

    Move into the one you want to sell, then sell as PPoR. Then move into the second one.

    • jaseredpanda on 17/03/2017 - 09:58

      yeh i was thinking about that, but i'm not sure if the timing starts from scratch as a subdivision or from when i first bought the place. also how long would you have to be in the place before its considered a PPoR, always been a blurred line

      • Steptoe on 17/03/2017 - 10:09

        Work colleague has recently done the same thing. Get some paid advice.

  • thechemist on 16/03/2017 - 22:12

    Generally land appreciates and building depreciate. So hopefully your duplex land component (which is now only half of what it used to be) will go up in value more than the drop in building value (However the only time the building may go up in value is if building cost increase substantially)

    Living in a new place is good lifestyle but not wise investment with the fall in value of building component (No one can put a $ value on your desired lifestyle though)

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