Ask Ban Tacs Question
I purchased a splitter block in Sep 2015 in Brisbane via unit trust. Me and one of my relative – both hold 50% of units personally. It was settled in December 2015. My intention was to rent house while subdivision plan were in progress. Once subdivision is approved(into 2 lots), I want to demolish property and sale land as 2 separate lots. House was vacated by tenant last month. I am hoping to demolish it and make it ready as 2 lots by December this year. Can you advise me following?
1. Is it better for me to get depreciation report done? I know I can use it during rental period. Will I be able to claim(or pass to unit holding person) leftover depreciation amount in tax ?
2. If I sale 2 lots in December this year, ATO will treat it as capital account or revenue account i.e. can I(means unit holders) take advantage of CGT benefit or not ?
3. Do I need to register Unit trust for GST or not ?
Answer
1. Probably not
2. Revenue
3. Yes register for GST but use the margin scheme
1) The first question is whether there is any building depreciation left? This would only be the case if the building was built or renovated after 16th September 1987. If it is then there will be some building depreciation available to claim for the period it was rented. Any remaining unclaimed depreciation available at the time of demolition can only be partially claimed. The calculation involves looking at the whole period from the time the property or renovations were completed through to its demolition, for the period of time it was used to produce income. If you don’t know how it was used in the past, then you will have to assume it was not used to produce income. This will mean that you can only be sure that for your ½ a year it was used to produce income. If the property was say 10 years old then you would be able to claim 0.5/10ths ie 5% of the remaining unclaimed building depreciation.
You need to weigh all this up against the cost of the depreciation schedule. We get a special offer from Washington Brown which I have emailed you. The reference for what I say above is ID 2010/36 http://law.ato.gov.au/atolaw/view.htm?docid=%22AID%2FAID201036%2F00001%22 as some quantity surveyors may try to tell you different.
As for plant and equipment you are allowed to estimate their second hand value yourself so no need for a quantity surveyors report just for that.
Further, whatever you do claim will just reduce what you can deduct against your eventual profit. As the 50% CGT discount does not apply there seems to be no point unless you particularly need deductions against the rent for the 2016 financial year.
2) This is a profit making venture not an investment in a rental property. Your intention right from the start was to sell for a profit so CGT doesn’t get a look in, it is all normal business income. Reference MT 2006/1 http://law.ato.gov.au/atolaw/view.htm?Docid=MXR/MT20061/NAT/ATO/00001 start at paragraph 262.
3) As this is a profit making arrangement the sale of the land is part of your normal business turnover and that turnover will exceed $75,000 for the year so you will need to register for GST and remit some of the selling price to the ATO as GST. You will of course be able to claim input credits for most of the expenses associated with the development. It is important that you use the margin scheme to keep the GST to a minimum as GST or not, you will get the same price for the property. The margin scheme agreement needs to be part of the contract. I think you will find a lot of useful information in our how not to be a developer booklet, in particular there is an article on the margin scheme. http://www.bantacs.com.au/booklets/How_Not_To_Be_A_Developer_Booklet.pdf
