Capital Gains & FBT

[Astrid]

Just wondering how capital gains and ftb go together. We are looking at the possiblity of buying a large enough property that we can subdivide some of the land off. Now I am pretty sure any money made from the sale (less associated expenses) will be classifed as captial gains and therefore taxed as part of our income. Now this makes it hard to estimate income for the purposes of FTB, basically we need that money during the year to stay ahead until the land is sold, but then I would assume that we would have to pay it all back when the land is sold. It is really an income that cannot be estimated for as it will be unknown when the blocks sell and for how much. I really hope if we go down this path that the blocks will sell in the same financial year.

Am I correct in my assumptions?

[Muppity]

Hi Astrid

I am pretty sure that you are right in your assumptions but in my experience it generally takes quite a while for a subdivision to go through (9 - 12 months is probably the norm in the areas that I have worked in) so it is probably actually the case that it would not sell in the same financial year as it was purchased. This can have pros and cons.

I think in your situation you just have say OK we need the FTB to survive and we are just going to have to factor in repaying it at the end and if it the sale falls into the next year then you will have the FTB for this year IYKWIM.

If you rang the council they could probably give you some idea as to how long a basic subdivision will take to go through. And then do some maths on that.

HTH & Good luck

[Astrid]

Thanks for that Muppity. The council area we are looking in has just had a change of CEO who is more progressive in allowing subdivisions, which is good. Plus it is about who you know down here and DH is getting to know some of those "whos" Saying that though I know it will take time to approve and sell. The money will be needed to renovate the house, so it is ok to take time.

[briggsy's girl]

you're spot on there Astrid - it will be classed a a part of your income - if you haven't estimated it, you'll get a nasty little debt from FAO at the end of the year - what i would suggest, if it's a "maybe it will sell this year, maybe it won't" situation - keep a record of what you're receiving - when the land sells, put that much aside so that, as soon as you get that little letter saying "you owe x amount" you can pay it back

it happens frequently as property sales are so variable - so if you're prepared for it you'll be better set than most!