Ask Ban Tacs Question
I purchased our now family home in Melbourne in 1987 and I have lived in the property since. I then proceeded to meet and marry my now wife in 1990 but the property continued to be in my sole name. The property is less than 2 acres. My wife and I have now separated and for property settlement reasons, I have recently subdivided the property into three lots – the front lot which includes the family home, and the 2 back lots which was part of the family’s backyard and amenity area. I plan to continue to own and live in the family home however I wish to sell the back lots to a third party developer. The plan is that my wife use the proceeds of the sale of the back lots to purchase her own home as part of a forthcoming family law agreement.
Will any CGT be payable on sale of the back lot given I have lived at the property for 30 years? If CGT does apply, will the cost base be an apportioned amount of what I originally paid for the property in 1987 or the value of the land at time of subdivision in 2017? Is it fair to assume GST will not be payable given no enterprise is carried on.
Secondly, all 3 lots are currently held in my name. Will it be easier/more beneficial to sell the land in my name and then transfer the proceeds as part of the family law property settlement to my wife or to transfer the property and then sell?
Answer
If you sell the back block then CGT will apply. The main residence exemption only applies to the dwelling and its curtilage as part of one sale. Unfortunately, because you purchased the property before 20th August 1991 you cannot increase its cost base by any holding costs. This leaves you the back lots’ share of the original purchase price, costs to purchase and improvements. You will be able to increase the cost base by the subdivision costs but these have to be apportioned between all three lots unless they are a cost that is specific to that lot.
In this case, as long as you do not build on the back blocks and you do nothing more than the minimum required by council to cut the blocks off, you are merely realising an asset. This means that the sale proceeds of the blocks are not part of your business turnover so you are not forced over the $75,000 threshold where you would be required to register for GST. Assuming you are not already registered for GST, you are not in the business of development and you don’t do anything business like you will not have to register for GST so you do not have to charge GST. It does worry me a little that there may be more to your circumstances than you thought relevant to the question so it is worth asking your Accountant who knows your circumstances much better than me whether you are doing anything that would make the back lot’s be considered part of the turnover of a business.
If you were not to sell off the back blocks to a property developer but instead transfer them to your ex spouse as part of the property settlement then you would be entitled to use rollover relief and all the tax consequences would transfer to her as if she was the one who bought the property back in 1987. But this doesn’t make the tax bill go away just shifts who pays it. There may be some advantages in that considering tax brackets and carried forward capital losses. Regardless the tax consequences need to be taken into account when determining the pool of matrimonial assets.
The court can even order a partitioning of the land as part of the settlement, not that I have ever seen this done. Your solicitor would be in a far better position that me to answer the question as to which way would be easier.
References:
If you are not already registered for GST you are not required to do so just because you simply choose to sell a property (a capital asset). Section 23-5 states that if the annual turnover of supplies you make in the normal course of your enterprise, exceed $75,000 you must register for GST. Section 185-25 excludes from the calculation of annual turnover the supply of a capital asset.
Further Reading:
http://www.bantacs.com.au/booklets/How_Not_To_Be_A_Developer_Booklet.pdf
