Investment Property - CGT & Tax question
#1
Investment Property - CGT & Tax question
Here is my question with some facts:
- 2 other businesspartners purchased a dilapidated property on a 1000m2 block on 13/04/15.
- We extensivelyrefurbished the property which was completed around 31/08/15 and we currently rent out as a holiday rental.
- We subdivided theplot of land on 12/08/15 creating 2 plots (Plot A with existing house and PlotB vacant land).
- We constructed aholiday cabin on the rear Plot B due for completion 28/02/16.
- The refurbished houseis on Plot A, with the new cabin on Plot B.
- 13/04/15 = Purchased house and land
- 12/08/15 = Land subdivided creating Plot A and Plot B
- 31/08/15 = Plot A house refurbishment completed
- 28/02/16 = Plot B cabin construction completed
Last edited by Shaun&Dee; Jan 21st 2016 at 1:37 am. Reason: Formatting
#2
Forum Regular
Joined: Jan 2011
Location: Brisbane, Australia
Posts: 92
Re: Investment Property - CGT & Tax question
Here is my question with some facts:
- 2 other businesspartners purchased a dilapidated property on a 1000m2 block on 13/04/15.
- We extensivelyrefurbished the property which was completed around 31/08/15 and we currently rent out as a holiday rental.
- We subdivided theplot of land on 12/08/15 creating 2 plots (Plot A with existing house and PlotB vacant land).
- We constructed aholiday cabin on the rear Plot B due for completion 28/02/16.
- The refurbished houseis on Plot A, with the new cabin on Plot B.
- 13/04/15 = Purchased house and land
- 12/08/15 = Land subdivided creating Plot A and Plot B
- 31/08/15 = Plot A house refurbishment completed
- 28/02/16 = Plot B cabin construction completed
The tax office may treat this as a "business" rather than the mere realization of the land as an asset. Ie, if you just subdivide a block of land and sell it not such a big deal right. One off development. But where you have business partners who have purchased, subdivided, then completed some extensive renovations/construction - an argument could be made that this is in fact a going concern - you are in the business of developing property and therefore the land is "trading stock". If that is the case then CGT is not applied and no discount. Rather, the profit will be treated as revenue and taxed as normal income.
Again, i am in no way an accountant and very happy to be proven wrong (im drawing on tax law that i did at law school 10 years ago!).
#3
BE Enthusiast
Joined: Dec 2014
Location: Parnell
Posts: 410
Re: Investment Property - CGT & Tax question
HI Shaun,The tax office may treat this as a "business" rather than the mere realization of the land as an asset. Ie, if you just subdivide a block of land and sell it not such a big deal right. One off development. But where you have business partners who have purchased, subdivided, then completed some extensive renovations/construction - an argument could be made that this is in fact a going concern - you are in the business of developing property and therefore the land is "trading stock". If that is the case then CGT is not applied and no discount. Rather, the profit will be treated as revenue and taxed as normal income. Again, i am in no way an accountant and very happy to be proven wrong (im drawing on tax law that i did at law school 10 years ago!).
Also a concern might be the renting out as holiday home versus any of the owners using as principal residence?