• Home
  • About
  • Like to Become a Contributor?
    • Your Current Expert Panel
  • Need Support?

Commercial Property Made Easy


  • Start Here
  • Expert Comments
    • Property Insights
    • Legal Matters
    • Finance
    • Tax Depreciation
    • Accounting Strategies
    • Superannuation Tips
    • Due Diligence
    • Valuer’s Viewpoint
  • Commercial Property
    • Offices
    • Retail
    • Industrial
    • Residential vs Commercial
    • Baby Boomers
  • The Economy
    • Interest Rates
    • Using Debt
    • Global Scene
  • Opportunities
    • Investment Opportunity
    • Development Opportunity
    • Your Potential Exposure
  • Bonus
    • Training Material
    • Investment Objectives
    • Buying Criteria
    • Negotiating Tips
    • Property Management
    • Key Consultants
  • Like to Contribute?
    • The Current Expert Panel
    • Contributor’s Agreement

Capital Gains Tax: Subdividing & Amalgamating Land

6 January, 2016 by Steve Enticott

THE FOLLOWING is a little-known (but should be widely-known) ATO explanation on how to calculate CGT on a property that was formerly your home that you subdivide much later. And how the principal place of residence can be lost.

More...

Let's go through it in some detail ... for a Dwelling that was purchased on or after 20 September 1985, and then subdivided after that date.

Kym bought a house on a 0.2 hectare block of land in June 2014 for $700,000. The house was valued at $240,000 and the land at $460,000. Kym lived in the house as her main residence. She incurred $24,000 in stamp duty and legal fees purchasing the property.

Kym found the block was too big for her to maintain. In January 2015, she subdivided the land into two blocks of equal size. She incurred $20,000 in survey, legal and subdivision application fees; and $2,000 to connect water and drainage to the rear block.

In March 2015, she sold the rear block for $260,000.

As Kym sold the rear block of land separately, the main residence exemption does not apply to that land. She contacted several local real estate agents who advised her that the value of the front block was $30,000 higher than the rear block.

Kym apportioned the $460,000 original cost base into $215,000 for the rear block (46.7%) and $245,000 for the front block (53.3%). Kym incurred $6,000 legal fees on the sale.

The cost base of the rear block is calculated as follows:

  • Cost of the land $215,000
  • 46.7% of the $24,000 stamp duty and legal fees on the purchase $11,208
  • 46.7% of the $20,000 cost of survey, legal and application fees $9,340
  • Cost of connecting water and drainage $2,000
  • Legal fees on sale $6,000

Total Cost Base = $243,548

The capital gain on the sale of the rear block would be $16,452.

She calculated this by subtracting the cost base ($243,548) from the sale price ($260,000). As Kym had owned the land for less than 12 months, she uses the 'other' method to calculate her capital gain.

Kym will get the full exemption for her house and the front block, because they were used as her main residence for the full period she owned them.

Not a bad result. But imagine if she had bought it 10 years earlier, used it as her principal place of residence the whole time and where the value was about half of the value it is now:

That is: $350,000 purchased with a value of $120,000 for the home and land at $230,000 ... which is now valued at the $700,000 10 years later.

For tax purposes, you do not use the market value -- you must use the original value.

The cost base of the rear block is calculated as follows:

  • Cost of the land (46.7%) $107,410
  • 46.7% of the $24,000 stamp duty etc on the purchase $11,208
  • 46.7% of the $20,000 cost of survey, legal and application fees $9,340
  • Cost of connecting water and drainage $2,000
  • Legal fees on sale $6,000

Total Cost Base = $135,958

The capital gain on the sale of the rear block would now be $124,042 ... with no allowance for the past use as the primary residence.

Bottom Line: As you can appreciate, this can be a real trap. And yet, it is one you can often avoid, with proper restructuring before any sub-divisions occur.

 

Why not Share this Page?

  • Share
  • Facebook
  • Twitter
  • LinkedIn

Filed Under: *Expert Panel, Opportunities, Superannuation Tips, Your Exposure Tagged With: 9-step formula, arranging your finance, Australia, Buying Criteria, chris lang, commercial property investing, commercial property investment, commercial property made easy, commercial real estate investing, commercial real estate investment, controlling the valuation, due diligence, final judgement, Investment Objectives, locking in your finance, maintaining and upgrading, Property Management, sifting and sorting opportunities

Why not join my 'Inner Circle' to ensure you don't miss the NEXT trend in Commercial Property?

We promise NEVER to share your details.

Trusted Consultants

Have you downloaded this free app?


How about a Masterclass ?

Like listening to a regular podcast?


PB-Patch

Featured Interviews on:

What we stand for

Hopefully, you will quickly realise that I'm NOT here to simply "push my own barrow".

Rather, everything here has been put together to provide you (as a serious Investor) with the very best insights into what you need to know ... in order for you to succeed with your Commercial property investing.

You see, the deeper your access is to all the key information and the more expert opinions you can learn from ... the more likely your ultimate financial success will be.

That said, you will discover everything you need right here – both readily available, and all in one place.

All the very best ... Chris.

Your Next Step

  Footer-2

Need an engaging speaker?



Are you in the process of planning your next Annual Conference?

Or maybe you have in mind one or more Training Workshops, for different parts of your team?

Either way, if you're looking for someone to help train you or your team on ... Commercial Property, Creative Marketing, Goal Setting or Negotiating ... Chris Lang can certainly fill that role for you.

Take a look at this short Video which will give you an idea as to the sort of training that's available.

Copyright © 2021 · Commercial Property Made Easy · All rights reserved.

Disclaimer      Privacy Policy

Copyright © 2021 · Metro Child Theme on Genesis Framework · WordPress · Log in