Tax payable on subdivision of property

Question from Jesse Owens updated on 23rd July 2007:

If I buy a property with an existing dwelling and subdivide and sell using the proceeds from the sale to reduce the mortgage debt on the remaining dwelling (which I retain and continue to rent) will I be taxed on the sale?

Our expert responded:

Whether or not tax is payable on the sale of a property is based on the intention at the time of purchase. If you purchase a property with the intention of holding it long term, yet circumstances in five years require you to sell, then no tax should be payable. However, looking at a transaction such as this, the act of subdividing the property into two does fall within the gambit of property developing, so chances are, you will have to pay tax on any profits made. You will also need to consider the issue of tainting and whether or not you should avoid being tainted (which you should) and the consequences either way. Please make sure you invest in some good advice from your accountant before proceeding.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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