Subdivision tax query

[wfa]

Hi all


I'm wanting to better understand tax implications on subdivision. I own a property zoned mixed housing urban which has enough site to be sub-dividable.

- If I've own the property for more than 10yrs, then subdivide and sell either or both (with houses that have been on them for more than 10yrs), are these sales then clear of income tax?

- Or, do I need to do the subdivision and then wait for 10yrs before sale to become clear of income tax?

Appreciate your views on this.

Thanks PropertyTalkers

[Beano]

Hi all


I'm wanting to better understand tax implications on subdivision. I own a property zoned mixed housing urban which has enough site to be sub-dividable.

- If I've own the property for more than 10yrs, then subdivide and sell either or both (with houses that have been on them for more than 10yrs), are these sales then clear of income tax?

- Or, do I need to do the subdivision and then wait for 10yrs before sale to become clear of income tax?

Appreciate your views on this.

Thanks PropertyTalkers

I am keen to know too.
I believed if you sell within 10yrs of subdivision you are liable for both GST and income tax ...

[Rosco]

Hi,

Tax on any land transactions are difficult. There are lots of ifs and buts. Therefore it is impossible to give full advice on a forum and you really need to go through all your history and situation carefully with a property accountant.

I can give some general information;

1) If it is your personal house, 4500m2 or less, owned in personal names, and subdivision done creating one section, then if section sold unlikely to be taxable.

2) Normally if you have held a rental property for 10 years before starting the subdivision process, then subdivide into 2 lots. Then gains shouldn't be taxed.

3) If you then build a house on either 1) or 2) with the intention to selling for a profit, then likely house profits will still be taxable

One nasty catch for example, CB 15 . Say you haven't provided the full information, and actually this property was owned by a development entity 15 years ago, then sold to your long term entity or personal names over 10 years ago. Suddenly this would change to taxable, even though held for over 10 years in long term entity.

Ross

[Rosco]

GST - depends on whether it is a continuous taxable activity. So it depends on the facts!

If it was a long term residential rental, and you were caught for income tax, this doesn't mean there is GST. If just one section subdivided and sold, it wouldn't be a continuous taxable activity on its own.

Once again need full information and need to get full advice. The above is a generalisation.

Ross

[Pegasus]

Ross could you comment on the following as I have had differing advice from different accountants and would be interested to hear your thoughts:

We trade in our trading company and pay GST all good.
For our buy and holds to create good yielding rentals we like the strategy of buying a property, subdividing it and selling part of it then developing the remainder to keep as a long term rental. Reason being its hard to find good yields and this is a way of creating them eg selling part of the section and keeping the existing house or adding minor dwelling. We have done this sort of development in our trading entity, sold all and paid tax and gst but would like to do it in our rental QC with the purpose to create the rental yield.

We accept there could be tax to pay when we come to sell and ok with that as its a long term rental. My question is around GST as if we did this a few times would that constitute ongoing development activity even though its for the purpose of creating rentals? I wouldn't want to do it incorrectly and be thought to be avoiding gst.

Are you aware of examples of this process being done to create rentals in any of your clients for example as I am getting conflicting views from 2 accountants,
thanks for your time Ross

[Rosco]

Ross could you comment on the following as I have had differing advice from different accountants and would be interested to hear your thoughts:

We trade in our trading company and pay GST all good.
For our buy and holds to create good yielding rentals we like the strategy of buying a property, subdividing it and selling part of it then developing the remainder to keep as a long term rental. Reason being its hard to find good yields and this is a way of creating them eg selling part of the section and keeping the existing house or adding minor dwelling. We have done this sort of development in our trading entity, sold all and paid tax and gst but would like to do it in our rental QC with the purpose to create the rental yield.

We accept there could be tax to pay when we come to sell and ok with that as its a long term rental. My question is around GST as if we did this a few times would that constitute ongoing development activity even though its for the purpose of creating rentals? I wouldn't want to do it incorrectly and be thought to be avoiding gst.

Are you aware of examples of this process being done to create rentals in any of your clients for example as I am getting conflicting views from 2 accountants,
thanks for your time Ross

Hi Pegasus,

Sorry too specific for a forum. It would depend on the exact facts.

The test is still the same, is it a continous taxable activity. And depends on the exact facts. So if you did one of these every 6 months, then obviously GST.

Ross

[Pegasus]

Ok, thanks for the reply Ross, appreciate it.

Hi Pegasus,

Sorry too specific for a forum. It would depend on the exact facts.

The test is still the same, is it a continous taxable activity. And depends on the exact facts. So if you did one of these every 6 months, then obviously GST.

Ross

[investorak]

Im also interested in knowing about this.

I remember Matt Gilligan talking about buying a house with a large section. Subdividing and keeping the original house as this would be more tax advantageous but not sure to what extent especially with the bright line test now.

Anyone know?

[Rosco]

Im also interested in knowing about this.

I remember Matt Gilligan talking about buying a house with a large section. Subdividing and keeping the original house as this would be more tax advantageous but not sure to what extent especially with the bright line test now.

Anyone know?

Hi investorak,

Again it depends. Is it personal home, long term hold rental or trading property! Land and subdivision is very complex and depends on the details!

There are some great tricks in this field and best to get expert advice!

Ross

[investorak]

Im just curious at this stage and im sure others also are. Does every tax question on here just get the "you need expert tax advice" speel. People obviously should not take tax advice on here and put it in action without running it past their accountant but general tax information should be shared on here shouldnt it?

Can anyone provide any general advice on this?

[Anthonyacat]

Im just curious at this stage and im sure others also are. Does every tax question on here just get the "you need expert tax advice" speel. People obviously should not take tax advice on here and put it in action without running it past their accountant but general tax information should be shared on here shouldnt it?

Can anyone provide any general advice on this?

There's a lot of fairly specific, free tax advice on this forum. I've got a lot of clients from giving out free advice here.

But when it comes to subdivisions, there really isn't general advice. It's very specific, with a lot of legal hooks. Ross has answered the question about as well as can be expected.

[Rosco]

Im just curious at this stage and im sure others also are. Does every tax question on here just get the "you need expert tax advice" speel. People obviously should not take tax advice on here and put it in action without running it past their accountant but general tax information should be shared on here shouldn't it?

Can anyone provide any general advice on this?

Hi Investorak,

Look through my history. I answer a huge number of questions and give out some great information. But I also don't want to give incorrect advice and I also don't want to get caught out somehow and be liable. Unfortunately lots of people will take advice through forums without getting full advice, so everyone has to be extra careful with the advice they provide.

I also answered the original question for a person's specific circumstance and question. Generally this is the only kind of question I choose to answer.

Ross

[akl13]

Hi,

Tax on any land transactions are difficult. There are lots of ifs and buts. Therefore it is impossible to give full advice on a forum and you really need to go through all your history and situation carefully with a property accountant.

I can give some general information;

1) If it is your personal house, 4500m2 or less, owned in personal names, and subdivision done creating one section, then if section sold unlikely to be taxable.

2) Normally if you have held a rental property for 10 years before starting the subdivision process, then subdivide into 2 lots. Then gains shouldn't be taxed.

3) If you then build a house on either 1) or 2) with the intention to selling for a profit, then likely house profits will still be taxable

One nasty catch for example, CB 15 . Say you haven't provided the full information, and actually this property was owned by a development entity 15 years ago, then sold to your long term entity or personal names over 10 years ago. Suddenly this would change to taxable, even though held for over 10 years in long term entity.

Ross

Hi Ross

In relation to your point 3) which of the CB do you believe would be triggered that lead to your opinion of being liable for tax on profit ?(for a typical family home owned for over 10 years and no other history of property transactions and no related builders or developers etc)

Building on your opinion in point 3) can I assume if you retain the new house but sellexisting house after subdivision then the sale of the existing house wouldn't generally be taxable?

Seems odd that you would get taxed if you sold new house but wouldn't get taxed if you sold existing house (and retained new house) or you sold the subdivided land as a vacant section.