Announcements
Have you sold crypto, shares or property? Our new capital gains tax guide has info about cost bases, calculations & more! Still got questions? Ask the Community!

ATO Community

CGT/GST Implications on Subdivision

Newbie

Views 489

Replies 5

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

Accepted Solutions

Most helpful response

Taxicorn

Replies 4

@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.

5 REPLIES 5

Most helpful response

Taxicorn

Replies 4

@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.

 

Initiate

Replies 1

Hi.  I'm a newbie and I wanted to post a similar question but don't know how so sorry for "piggybacking".

 

My situation is similar but slightly different. I'm considering demolishing our house (no longer our residential home) and subdividing to create 2 seperate titled (green) blocks of land for resale.  We purchased it in 1993 to live in and we then moved to our current residential in Sept 2020. The house to be developed is currently rented from this date.  We have no other business interests in property development.

 

So questions re CGT and GST implications:

1. If we sell the 2 blocks for a profit is there any CGT charged?  If so will the 50% discount rule apply.

2. Is GST applied to the sale price on each block?

Thanks for your input :-)

 

ATO Community Support

Replies 0

Hi @worldinabag 

 

Welcome to our Community Smiley Happy I've answered your post over on your thread you made:

What taxes are paid on subdivision of land