Many Australians decide to subdivide their backyard without considering how that can affect them from a tax point of view.
Subdividing is a strategy that we’re finding to be more and more popular. Typically, our clients have a primary residence with a rather large backyard and they decide that they don’t need that land.
Therefore, they decide to subdivide it. They either sell it off, build something on it and sell it off, or build something on it and move into it.
An issue arises when the decision is made to subdivide and sell that vacant land before anything is built on it.
What’s the issue?
That vacant land does not actually get covered by your Primary Residence Capital Gains Tax Exemption.
Hence, the land will be subject to tax and the cost base of that land is actually your original purchase price from way back when.
You can’t even use some other rules that are available when it comes to properties, such as the Market Value Substitution Rule.
This is quite a complex tax position to put yourself in. It’s very important that you understand the advantages and disadvantages of subdividing your land.
Ultimately, it is in your best interests to talk to one of the Tax Champion property specialists here at Paris Financial.