Here's the deal with pre-CGT land and some tax warnings:
-
When you divide pre-CGT land into lots, it doesn't trigger any capital gains tax (CGT) event. So, each new lot is treated like it was acquired when the original land was bought. This means, usually, selling subdivided pre-CGT land won't attract CGT.
-
However, if you make improvements to pre-CGT land after September 20, 1985, those improvements might be treated separately for CGT purposes. For example, if you build something on the land after that date, it's considered a separate asset from the land itself. In such cases, when you sell the land, you'll need to divide the sale price between the pre-CGT land and the improvements.
-
Be careful with expenses related to profit-making schemes. Unlike with regular business expenses, you can't deduct them right away. Instead, they're set aside and only counted when calculating the net profit, which then gets taxed. This is different from trading stock businesses where certain expenses are deductible immediately.
So, if your property transaction isn't likely to be taxed as a capital gain, it might be better to structure it as a property development business. That way, you might get better tax treatment for certain expenses like interest.
If you're confused or need more help, feel free to contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
