If you own a sizable block you may be considering subdividing the block to generate some cash. This could be by selling off the backyard, or restructuring the property to fit multiple buildings to be sold separately.
If you are thinking of subdividing your main residence, make sure that you are are mindful of all the tax consequences before investing into the planning stage.
Whether you are planning to sell a vacant block of land, a part of the property, build and move in, build and rent out, or build and sell the property right away – all of these options have different tax implications.
Selling a subdivided block will likely require Capital Gain Tax (CGT) to be paid. Constructing a building on the block and selling the property may constitute business income, depending on the circumstances.
If the sale of the subdivision is subjected to CGT the main residence exemption may be available in part or in full, depending on the circumstances.
However, if the project undertaken constitutes a profit-making intention, such as building and immediately selling, you may also be subject to GST obligations. Even with a one-off development you may still be required to register for GST and pay a portion of the sale proceeds to the Australian Taxation Office.
At Saward Dawson, we can advise you on all the financial and tax implications of property development.
By knowing the income tax, CGT and GST implications, you will be better placed to make informed decisions and not be caught out by any unknown tax surprises.