CGT liability for building 2 houses on land previously PPOR

Question

In 2001 we purchased a house on a block of land (730m2) which was our PPOR. 4 months ago we demolished the house and are now renting, as we intend to build on one side of the land (taking 12-15 months), live in the new house for 3-6 months and then sell it. At settlement, we will make application for new titles to issue (all surveying work, planning approvals etc will be in place; all that will be left to be done is to lodge the paperwork with Landgate to create the new titles documents for the surveyed blocks) – one title will be for the property being sold and settled, and the other for the remaining block.

We would then like to build on the second piece of land and live in this house for at least 5-7 years.

What will our CGT position be with respect to the sale of the first and second homes? We do have some flexibility as to what we do with land and/or houses, and when we do it, if taking a different course will put us in a better overall financial position.

Answer

Firstly you have a problem if you build the first new house with the intention to sell. Living there for 3 to 6 month will make no difference. It is a profit making venture so the profit is normal business income and you would have to charge GST on the sale.
The second home you appear to be building to keep as your home so certainly from the time you move in to it to the time you sell it would be entitled to the main residence exemption. You can also cover it with your main residence exemption using either the absence rule or the 4 year vacant land/ renovation rule from the time you move out of the old (demolished) home to moving into the new home as soon as it is completed. And of course the period before demolishing the old home will be exempt as you main residence. So with careful planning this second home can be sold CGT free
Note even if you built the first with the intention of making it your home you would still then need to choose which of the properties got your main residence exemption during the period you owned both because the way you have planned it they cannot both be covered by the main residence exemption at the same time.