Subdividing rental property and changing names.

Question

My husband and I own 3 old rental properties in joint names and want to subdivide one (purchased 2001) and build two new houses to rent out long term. To reduce liability issues and land tax we want to have one property in each name. We are told we can remove one name from each title without paying stamp duty but do we trigger a CGT event? If so, how do we work out the current property value and if the contract is signed in one financial year but the demolition is the following year, can we still claim demoliton and torrens title costs on the cost base when calculating GST?

Answer

I am going to assume the last word in your question was intended to be CGT not GST.

Yes, if you subdivide and don’t end up with two titles jointly owned then you are considered to have transferred half of each property to each other for CGT purposes. This problem would not apply if instead you built townhouses under a strata plan as section 118-42 would give you roll over relief.

Of course it would be wise to make sure the transfer happens when the property value is as low as possible relative to its cost base but you can’t do anything till you subdivide. The transfer must be at market value. The cost base includes the original purchase price of the property even if the house has since been demolished and the demolishing costs can also be added to the cost base. Council fees, planners, surveyors etc are also included in the cost base. Expenses incurred after a contract is signed but before settlement can be included in the cost base but I can’t see the advantage here as the more you do to the property the more its market value is going to be. I expect the best tax outcome is to transfer the property as soon as possible after you have separate titles as surely every extra thing you do to it increases its market value or you wouldn’t be doing it.

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