Buying part of my neighbour’s land | Ken Raiss [Podcast]

When it comes to land purchase, there are many implication to consider. 

In a a recent Real Estate Talk Show Ken Raiss  from Metropole Wealth Advisory answers a question about possible tax implications when doing a subdivision by acquiring a portion of a neighbour’s land.

Here’s a transcript of the interview:

Kevin:  This time, we’re going to answer a question from Darryl, who writes and says:Ken Raiss

“If I’m doing a subdivision on someone else’s block of land (I’m buying their back yard), what tax implications do the original owners have, assuming it is the principal place of residence, and never been rented, etc.?

That is, are they required to pay capital gains tax?

And does it make a difference if it’s before September 1985 or after September 1985, assuming the person has been living in the property over 12 months?”

Ken: Well, normally, when you sell your home, there is no tax, but in this case, the circumstances are different.

The main residence exemption normally applies to the building and, therefore, the land needed for that.

As such, if part of the land is sold – as in this case – it is not recognized as your main residence, and that part of the land, when sold, would therefore be subject to tax.property investment Land tax

We would need to do a calculation to determine how much tax. 

What we do is we go back to the original price paid for the house and land, and then work out what the land component was, and then pro-rata it to the amount of land sold.

We would then calculate the capital gains tax after taking into account all the additional costs – such as subdivision costs, lawyers, any other special planning, or whatever – to then calculate the capital gain. If they’ve held it more than 12 months, you’d get the normal 50% capital gains tax discount.

But if they had bought it before capital gains tax legislation came in – i.e. September 1985 – then there would be no tax.

So, we need to get some pencil and paper out and do the sums.

Kevin:  Would you call a valuer in to do that? 

wealth-advisory-ad-305x292-v2

Ken:  You would, but they’d have to obviously go back to the date of purchase, subtract the building cost to get the land components, and then pro-rata it.

So, if there were 700,000 square meters of land and you sold half of it, 50% of those costs would go to the back yard that’s sold.

You’d need to do that proper evaluation because you have to understand the building cost at the time of purchase, the cost for the building, and therefore, the residual being for the land.

Kevin:  The bottom line question here from Darryl was whether or not tax is payable, and the answer to that is yes, it is.

Ken:  Correct, unless, as he made out, it was bought before the capital gains tax legislation came in.

Kevin:  Ken Raiss from Metropole Wealth Advisory, thank you so much for your time.

Ken:  A pleasure.

icon-podcast-large

Subscribe & don’t miss a single episode of michael yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to michael yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Avatar for Property Update

About

Kevin brings together leading authorities on the property market in his weekly Real Estate Talk Podcast. Visit www.RealEstateTalk.com.au


'Buying part of my neighbour’s land | Ken Raiss [Podcast]' have 2 comments

  1. Avatar for Property Update

    September 11, 2018 G & M

    I have a similar question on neighbouring land but a somewhat more modest example. My neighbour’s adjoining 6 meters x 12m of a 700m sq block is overgrown with trees (pushing the fence over) and rubbish and we are considering approaching him about a purchase possibility. The council rate rates estimate for our similar block is 1.4mill. is there a commonly accepted starting point for purchases like this? Do we start at say the 10% of that figure – but also acknowledging that sale value is higher? And what might be a usual council fee for a transaction of this kind?
    Appreciate any advice. Thankyou. G & M.

    Reply

    • Avatar for Property Update

      September 11, 2018 Michael Yardney

      The council rating certificate is a very, very poor indication of land value – you may be overpaying or underpaying – You need to get a better appraisal of the property’s value before you start negotiating

      Reply


Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


facebook
twitter
google
0
linkedin
0
email
Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

REGISTER NOW

Subscribe!