Home' API Magazine : December 2014 Contents 68 n APIMAGAZINE.COM.AU n DECEMBER 2014
properties will achieve in the meantime
and the likelihood of increased
densities for that zone as Melbourne’s
“The timing will depend on what
happens with the family and dad’s family
home,” Frank says.
“He’s living there at the moment and
we’re not going to kick him out of there.
It’s all subject to what my dad wants to
do. I don’t think it’s going to happen in
the near future. He’s the most important
factor for us and whatever he wants to
do, he can do. It’s going to really work
around him. If he lives until 90 and he’s
happy there, then this project will be on
hold until he’s 90 and then we’ll work
out what we want to do when the time
“For instance we’ve got a holiday
house down at Mornington Peninsula; if
he decides he wants to move down there,
then that’s obviously going to open up
the discussion on what we do with the
sites. I’ve got two sisters who are going
to be beneficiaries of dad’s property and
dad will still be involved, so we’ll make
that decision when that time comes. It
might not happen for 10 to 20 years.
We’ve just bought with that potential
that it might be an opportunity to set the
family up. Michelle and I own a large
portfolio and my other two sisters don’t,
so for me it’s an opportunity to hopefully
help them have a great opportunity to
set themselves up and it’s obviously a
great opportunity for us.
“We’d be crazy not to, if we can, put
30 apartments on there or however
many are allowed. We’d probably keep
some and sell some and have some
investments there for our kids.
“Our parents came here in 1970 and
didn’t have much. They worked hard.
Dad was a cleaner and mum was a
kitchen hand, so they worked really
hard to get us through Catholic schools
and give us an opportunity, so this is an
opportunity for us to try and do that for
our kids in the future as well.”
While each suburb has different
council restrictions, Frank has seen a
carbon copy of the development he has
in mind completed in Elwood.
“I knew when the developer was
buying what his intention was. He
bought one, then he bought the second
one and the third one. We saw that
taking shape and they got permits in
the end for 41 apartments. When I saw
that happen, my ears pricked up when I
knew the house next to dad was coming
up for sale. We didn’t know another
one would be coming up but we knew
there would be the possibility in the
next five years and before you know
it, I got the call saying ‘we’re going to
market as well’, which happened in May,
only six months after we’d bought the
1. Frank needs to register for GST if he
intends to sell some of the apartments.
2. He can only claim the input credits
back on the ones he’s going to sell.
(An input credit is the GST that can
be claimed back).
3. If he’s still registered for GST when he
sells the rentals he will have to pay GST,
unless they’ve been held as rentals for a
continuous period of five years.
4. There will be no 50 per cent capital
gains tax discount on the gains made on
the ones he builds to sell.
5. Frank needs to consider keeping the
current house on the land until his father
dies. If he doesn’t, when calculating the
profit on the property for capital gains tax
purposes he will have to start with the
price his father paid back in 1992 rather
than the market value at date of death.
6. It’s important to make sure contracts
for sale of units include a margin scheme
clause. (The margin scheme puts GST
liability at one-11th of the margin made
in the sale of the property, rather than
one-11th of the total selling price).
7. The renovations to the current rental
properties are initial repairs so will have
to be written off over 40 years but when
Frank demolishes he will be able to
claim the balance if they’ve been used
as a rental property all the time. So the
deduction will be 2.5 per cent a year
for the 10 years before he develops.
The remainder of the costs will be an
outright deduction when he demolishes.
8. Transferring the units from the current
trust ownership into the name of
individual family members will be
considered a sale. There may be an
advantage in changing the ownership
of the properties before construction
commences (i.e . when they’re at the
lowest possible value and then utilising
the rollover relief in section 118-42 of
the Income Tax Assessment Act). It’s
worth getting advice before starting. For
example, the estate could transfer the
title of the middle block to the family
members that want to keep units.
Section 118-42 allows rollover relief (i.e .
no sale where the units are transferred
to the individual ownership of the people
who, together, originally owned the land).
Source: Julia Hartman of BAN TACS Accountants Pty Ltd.
8 TAX CONSIDERATIONS FOR FRANK
“It might not happen for 10 to 20
years. We’ve just bought with
that potential that it might be an
opportunity to set the family up.”
FEATURE n Advanced Investor
Links Archive November 2014 January 2015 Navigation Previous Page Next Page