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Selling off the backyard, to help fund staying put, any tax issues?

by | Mar 17, 2019 | Capital Gains, General, Property Taxation, Tax Planning

Subdivide the backyard

We are getting a number of inquiries from people living on large blocks of land, (i.e.) 800m2 plus in suburbia, or areas surrounding, looking to subdivide for various reasons some of the lands, to help fund things like:-

  • major renovations to their existing home, which they may not be able to afford otherwise, so they can stay put.
  • build their dream home, without having to move from the area they know and love.
  • unlock equity from their home, to fund retirement, without having to move, or consider a reverse mortgage
  • fund holidays, health issues, or help out other’s in the family
  • or just reduce the maintenance of a big yard.

However are there any tax issues which you may need to be considered?

Principal Place of Residence (PPR) Exemption 

  • If the overall land is under two hectare (4.94 Acres), the ATO deems this to still be your PPR
  • If you subdivide the land and maintain common ownership, there is no CGT triggered.
  • However, if you decide to sell one of the subdivided lots, without your PPR on that particular lot, you will lose the PPR exemption.
  • The subdivided lot if sold separately will be seen as a separate capital asset, subject to CGT, so look to hold the lot for 12 months once you have a separate title, to get the 50% discount for any CGT
  • As you are most likely not in the business of subdividing, (i.e.) a developer, the land will be considered capital, rather than trading stock on a revenue account, so not subject to GST on the sale.
  • It is important that the exercise is seen as a mere realisation of excess land, and not a predetermined scheme to try and avoid being seen as a developer, otherwise if audited by the ATO, you may need to argue why your not a developer masquerading as an owner occupier.
  • If audited by the ATO, the issue will be one of the motivations at the time of purchase the family home on a large block, if it can established you had intentions to subdivided, there could be dire tax consequences of land being treated as trading stock, no CGT discounts, and GST been retrospective applied to the land sales.
Subdividing the backyard

If you considering subdividing your backyard, careful consideration of your motivations at the time of purchase, length of ownership, expertise in the property industry, could all play a factor in being able to exercise the PPR CGT Exemption or getting the 50% discount on subdividing the family backyard.

If you would like any advice around subdividing your property, please contact our office.

Just a few question we can help with:-

  • How to calculate the cost base on any subdivided land
  • Should you sell any subdivided land with or without the PPR on that lot.
  • Which subdivided lots can you sell to avoid any CGT
  • If you subdivide and build a new home on a separate lot to sell, what are the tax considerations
  • What if we subdivided to provide land to family to build on, how can we avoid paying tax.

See our other related blogs:-

Splitter Block or Subdivision – Whats the difference?

Buying the land next door to retain the CGT Main Residence Exemption

Buying a home on behalf of a family member that can’t get finance – No CGT later on the transfer.

Principal Place of Residence – Building, Replacing, Compulsory Acquistion or Destruction – CGT?

Property Development – Tax Issues to Consider

Backyard Splitter Blocks Catching on in SouthEast Qld

Captial Gains Tax on Deferred Property Settlements Over 12 months

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