The New South Wales (NSW) state government has introduced measures to address the housing affordability crisis by allowing for denser development in areas surrounding train stations and shopping centres. If you receive a generous offer from a property developer for your home or rental property as a result of rezoning, it is important to consult with a tax adviser to understand the potential tax consequences. This article provides an overview of the capital gains tax (CGT) implications and other income tax considerations when selling your property to a developer, not only in NSW but also in other jurisdictions.

 

CGT liability and exemptions

• Your primary residence is generally exempt from CGT.
• If you have used your home to generate assessable income, such as renting it out or using it for business purposes, you may be subject to partial CGT liability.
• The calculation of this liability can be complex and depends on the specific circumstances.
• The “absence concession” allows you to treat your home as your primary residence even if you rented it out for a period, potentially making the sale CGT-free.
• If the absence concession doesn’t apply, you need to reset the property’s cost for CGT purposes based on its market value when it was first rented out.

 

Home used for business purposes

• If you used a part of your home for business purposes, you also need to reset its cost for CGT purposes.
• Depending on the situation, you might be eligible for CGT concessions for carrying on a small business.
• Determining eligibility for these concessions can be complex and may require professional guidance.

 

The 50% CGT discount

• The 50% CGT discount can potentially reduce the assessable capital gain.
• Qualifying for this discount may not be straightforward and requires careful consideration of eligibility criteria.

 

Tax treatment as business income

• In certain cases, the gain from selling your property may be assessed as taxable business income rather than a concessionally taxed capital gain.
• This can occur if you have engaged in business-like activities to increase the property’s value specifically for attracting higher offers from developers.
• Recent case law has confirmed this view, although it should be noted that the case law is at a lower tribunal level.

 

Conclusion

If you find yourself approached by a property developer to sell your home or real estate, it is advisable to consult with a tax practitioner. They can provide invaluable advice on the tax implications, help navigate complex calculations, and potentially maximise your gains from this one-time opportunity involving your primary asset. Understanding the CGT rules, exemptions, concessions, and potential business income considerations will ensure you make informed decisions regarding the sale of your property in light of rezoning and denser development initiatives.

For more information and assistance, contact our experienced team.