Will I be subject to CGT if I add-value and sell?

Question from Lisa updated on 18th November 2010:

I have recently purchased a two bedroom house with an internal access garage that I intend to convert into a third bedroom. Will I be subject to capital gains tax on this and if so, how can I avoid it tainting my other investment property?

Our expert Mark Withers responded:

Provided you did not acquire the property with an intent to onsell it for profit and provided you do actually do the development work to enable yourself to derive additional rental income from the property any eventual capital gain on the property should remain tax free as long as you are not associated to someone who is in the business of building, developing or subdividing. If you are asssociated to someone engaged in these activities you will need to hold the property for 10 years to avoid income tax on any gain on disposal. 

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.


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