Tax Implications of Selling a Development Site in Australia: CGT & GST Guide

Important Disclaimer

This article provides general information only and is not tax advice. Every property sale has unique circumstances. Always consult a qualified tax professional before making decisions about selling a development site.

Capital Gains Tax (CGT)

When you sell a property for more than you paid for it, the profit (capital gain) is generally subject to Capital Gains Tax. Key points for development site sellers:

How CGT is Calculated

Capital Gain = Sale Price − Cost Base

Your cost base includes:

• Original purchase price
• Stamp duty paid on purchase
• Legal fees (purchase and sale)
• Agent's commission on sale
• Capital improvements made during ownership
• Incidental costs of buying and selling

The 50% CGT Discount

If you've owned the property for more than 12 months (which most development site sellers have), you're entitled to a 50% discount on the capital gain. This means only half the gain is added to your taxable income.

Example:

• Sale price: $1,500,000
• Cost base: $500,000
• Capital gain: $1,000,000
• After 50% discount: $500,000 added to taxable income

Main Residence Exemption

If the property has been your main residence for the entire period you owned it, the capital gain may be fully exempt from CGT. If it was your main residence for part of the time, a partial exemption applies.

This is particularly relevant for homeowners selling their family home as a development site — you may pay no CGT at all.

GST Considerations

When GST Applies

The sale of residential property is generally GST-free if:

• It's been used solely for residential purposes
• The seller is not carrying on an enterprise of property development

However, GST may apply if:

• You're registered (or required to be registered) for GST
• The sale is considered part of an enterprise or profit-making scheme
• The property is new residential premises (which development sites generally aren't when sold by original owners)

The Margin Scheme

If GST does apply to your sale, the margin scheme can significantly reduce the GST liability. Under the margin scheme:

• GST is calculated on the margin (sale price minus purchase price) rather than the full sale price
• Both buyer and seller must agree to use the margin scheme
• The GST amount is: Margin ÷ 11

Example (without margin scheme):

• Sale price: $1,500,000
• GST: $1,500,000 ÷ 11 = $136,364

Example (with margin scheme):

• Sale price: $1,500,000, purchased for $500,000
• Margin: $1,000,000
• GST: $1,000,000 ÷ 11 = $90,909

The margin scheme saves $45,455 in this example. Developers often request the margin scheme in their offers.

Structuring the Sale

How you structure the sale can have significant tax implications:

• Selling as an individual: Subject to CGT at personal marginal tax rates (with 50% discount if held 12+ months)
• Selling through a trust: May allow distribution of the capital gain to beneficiaries in lower tax brackets
• Selling through a company: No 50% CGT discount, but company tax rate applies (25-30%)
• Selling through an SMSF: Concessional tax rates may apply (15% during accumulation, 0% during pension phase)

The right structure depends on your personal circumstances. Get advice from a tax professional before committing to a sale.

Key Tax Planning Tips

1. Engage a tax advisor early — before you list the property, not after you've signed a contract
2. Understand your CGT cost base — gather all records of purchase costs, improvements, and holding costs
3. Consider the timing — selling in a financial year where your other income is lower can reduce the effective tax rate
4. Check the main residence exemption — if the property was ever your home, you may be entitled to a full or partial exemption
5. Discuss the margin scheme with your agent — developers may factor this into their offers

Daniel McCormack

Managing Director, ACRES — Australian Commercial & Residential Group

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