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CGT liability for building constructed post 1985 on land purchased pre 1985

Discussion in 'Accounting, Tax & Legal' started by coops, 1st Jan, 2008.

  1. coops

    coops Member

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    Whilst I realise this question needs professional advice, I'm hoping someone can give a brief answer to what happens in this situation. A block of land was purchased by a member of my family prior to Sept 1985. In approx 1987, residential units were built on that land and they have been rented out for the last 20 years. If those units are now to be sold I am assuming that the Land component would be CGT free and the Building component would be subject to CGT. If that is correct, how is the Capital Gain apportioned between the land and the building?
     
  2. DaveA

    DaveA Well-Known Member

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    id imagine it would all be cgt free.... i believe it is but cant be bothered looking it up in the tax legisation next to me

    ie if you had a house from pre 85 and knocked it down and replaced it with something i think it would still be cgt free...

    but always ask a professional
     
  3. taxstar

    taxstar Active Member

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    The new building may be a seperate CGT asset, if you exceed the investment thresholds for improving pre-CGT assets or the amount attributed to the building is more then 5% of the proceeds (which is likely).

    There is a basic guide on the ato website at

    Separate assets for CGT purposes

    I terms of apportionment - You will need to do this on a reasonable basis. What does that mean? It means when the ATO asks you how you apportioned the proceeds, the mythical Reasonable Person would agree that it was OK.

    I have just looked into this area so you can send me a private message if you need more help.
     
  4. taxstar

    taxstar Active Member

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    I believe your house would be a seperate asset, but if you live in the house for the whole time, then you could rely on the Principal Place of Residence Exemption, rather than the Pre-CGT status of the property.
     
  5. coops

    coops Member

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    Thanks for your thoughts on this Taxstar. I had found that section on the ATO website at the weekend and was amazed at how vague it was. Will send you a PM once I have all the facts.
     
  6. Rob G.

    Rob G. Well-Known Member

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    Take AAAALLLLL evidence of costs to your Accountant to establish as large a cost base as possible.

    Yes ... 20 years of paperwork, including the cost of every light globe or newspaper vacancy ad !!!

    Also any building allowances claimed - which will reduce the cost base !!

    Jack up the cost of the buildings as much as possible & get the best valuation of the land as possible.

    CGT - a simple concept turned into an unworkable practice.

    Cheers,

    Rob
     
  7. coops

    coops Member

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    Brisbane, Qld
    Thanks Rob - what a nightmare !! Sounds like the land valuation will be critical.