We just retired and intends to knock down our old home, subdivide the land and build 2 new houses on each new sub-divided plot. We then intend to move back into one of the house when it is completed and sell the other new house. This will probably take 2 years from the time we move out, demolish the old house and rebuild before we can move back to one of the new houses.
My questions are;
- What is the tax implication for the new house that will continue to become our principal residence? Am I right to assume there is no income or CGT implications if we finally sell it many years later because it has been our principal residence despite 2 years away during the demolish and rebuild phase?
- What is the tax implication for the second new house that we will sell? I assume that it will be subject to CGT but what is the cost base for the capital gains calculation? It would not seem fair to use the amount we paid for the original houses a long time ago because it is our principal residence all this while. Am I correct to assume that the cost base for CGT will be a fair basis pro-rata of a fair value assessment of the current house before we demolish it plus a fair cost allocation of the demolition cost plus the cost of building the new house?
Thanks.
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