Selling your backyard may mean paying tax
Joe & Mary bought a home on a large block of land (1,000m2) on a corner block with two street frontages in June 200 for $350,000. The house was valued at $120,000 and the land at $230,000. Now some 13 years later, land values in the area have increase and the local council is now looking favourably on infill projects to increase rates and higher density living.
Joe & Mary now want to downsize however like the area, so in January 2013 decided to split the block in half, with the house on one block and the back block facing the other street frontage. Joe and Mary incurred $30,000 in survey, legal and subdivision fees and $4,000 in connecting the water,power and drainage to the back lock. In March 2013 the backyard block was sold for $300,000.
As the backyard was sold separately, the main residence exemption does not apply to the land. Joe and Mary contact several local real estate agents who advised the backyard block was valued at $20,000 less than the front block with the house.
Apportionment of land value to the backyard block $230,000 Original land Value in 2000.
Divide by 2 less ($20,00/2) = $105,000 (46.65%)
Front block with house (54.35%) $125,000
$30,000 subdivision costs at (46.65%) $13,695
$4,000 connection costs at (46.65%) $1,826
Legals to sell at (100%) $2,000
Agent Commission to sell at (100%) $8,040
Cost Base of backyard block $130,561
Sale price of backyard block $300,000
Capital Gain on backyard block $169,439
If the subdivision was held for 12 months, the capital gain would be eligible for a 50% discount.
If Joe and Mary sold the front house and built on the back block their would be not CGT on the old home and the cost base on the back block would become there new principal place of residence land value cost base.
Umbrella Accountants – Property Accountants Brisbane