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Re: CGT/GST Implications on Subdivision

Newbie

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Replies 3

Hi everyone,
We are looking to act as a consultant for a friend who wants to subdivide and sell the rear parcel of their primary residence, the CGT/GST implications are quite confusing. The situation is as follows:

 

- They will retain the front block and remain living in it.
- They have agreed to the price of $200,000 for the rear parcel of land that will be paid to them upon the sale of all new lots created at the rear.

- After the $200,000 is paid to our friends, the costs of the project are paid back, we will collect all remaining profit.

- We have agreed to pay their CGT or GST implications but are confused as to which it will fall under.

 

How are the tax implications calculated?


As they will be doing this "in the business of real estate", will GST on all new blocks be payable and income tax at their marginal tax rate? Therefor requiring them to have an ABN and sign up for GST?

OR is it calculated as a capital gain for them?

 

Any help is much appreciated as we want to pre determine what the tax implications will be so we can agree on a figure we will pay them ontop of the $200,000

Thanks a lot!!

1 ACCEPTED SOLUTION

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Most helpful response

Taxicorn

Replies 2

@Somedayoneday 

 

If you subdivide and then sell that block you are merely realising an asset and will not pay any CGT or GST.

Assuming they have lived there for quite some time.

 

If they just bought it and want to do it, then this is not seen as realising an asset but a businees making venture and will be liable for CGT and GST.

3 REPLIES 3

Most helpful response

Taxicorn

Replies 2

@Somedayoneday 

 

If you subdivide and then sell that block you are merely realising an asset and will not pay any CGT or GST.

Assuming they have lived there for quite some time.

 

If they just bought it and want to do it, then this is not seen as realising an asset but a businees making venture and will be liable for CGT and GST.

Newbie

Replies 1

Doesn't income from realising an asset fall under the CGT regime?
To my understanding you will either pay one or the other? 

Taxicorn

Replies 0

@Somedayoneday 

 

Not if you just subdivide it and sell it.

 

If you do more thn that there will be CGT.