We explain how seeking expert advice when planning to subdivide your property can make a big difference to the outcome.
We met with a young couple who were considering their options around developing their family home property into four lots.
They were living in a two-bedroom house on the front of their section. The back of their section could be subdivided into three and their plan was to build three new town houses. We discussed two different scenarios for doing this.
Scenario 1: Build the Three Town Houses and Sell Them
Under this scenario, the couple would continue to live in the two-bedroom older house while building the three town houses. The profits from the sale of the three townhouses would be taxed as income. The sale would also attract GST.
Scenario 2: Build the Three Town Houses and Move into One of Them
Under this scenario, the couple would live in the older two-bedroom house while they built the three town houses. They would move into one of the new townhouses as their new family home on a long-term basis.
Under these circumstances, if they decided to sell this particular new townhouse in the future it would not be taxed. They would sell the old two-bedroom house. Again, in these circumstances, because this was their home it would not be taxed. The other two townhouses would be built and held long term as rental properties. They would pay tax on the net rental income, but provided the townhouses were not sold within two years the eventual sale of the townhouses would not be taxed.
None of the properties in Scenario 2 would attract GST.
When it comes to tax advice around property transactions, it is important to note that you should not use the advice given to someone else as a template to be applied to your own affairs. There are many, many factors around your circumstances to consider – which may cause a completely different result. For example, if you are a builder, developer or trader or you are associated to someone who is, then everything in Scenario 2 may be taxed, depending on your history.
A short meeting with your accountant before you proceed with your plans can make a huge difference to your financial wealth.
If you would like to discuss how property structuring may benefit your situation, please contact us on (09) 839-0087.