The NSW state Government is attempting to help with the housing affordability crisis by making areas around train stations and shopping centres eligible for rezoning for denser development.
It will be important to see your tax adviser if you receive a generous offer from a property developer for your home (or rental property) as a result of this rezoning. And not just if you live in NSW.
This is because you will have to consider the capital gains tax (CGT) – or possible other income tax consequences – of selling your home or rental property in these circumstances – including where you may be forced to sell under some state compulsory acquisition rule (eg, in relation to strata units).
Understanding the tax implications: A closer look
When selling your property, especially in the wake of new rezoning laws, the financial implications extend beyond the sale price. Key among these considerations is the Capital Gains Tax (CGT), a complex area of tax law that can significantly affect your net proceeds from the sale.
Capital Gains Tax (CGT): What you need to know
- Primary Residence vs. Investment Property: While your primary residence may be exempt from CGT, this exemption does not apply if your property has been used to generate income, for instance, through renting out part or all of it, or using it as a home office. Such use can lead to a CGT liability, the calculation of which requires careful analysis and understanding of tax laws.
- Complex Calculations: For properties that have served as both a residence and an income-generating asset, calculating CGT liability involves understanding specific tax provisions, such as the “absence concession” and small business CGT concessions, which can affect the taxable amount. The process includes reassessing the property’s cost base, potentially adjusting it to market value at the time it first began generating income.
Navigating tax discounts and Income assessments
The possibility of qualifying for a 50% CGT discount or other concessions can complicate the tax calculation further. Moreover, enhancing your property’s value to attract higher offers from developers could result in your profits being taxed as business income rather than a capital gain, an important distinction that can have significant tax implications.
In this ever-changing real estate and tax landscape, professional advice is not just beneficial; it’s crucial. Consulting with a tax advisor can help you navigate these complex issues, ensuring that you maximize your profit while complying with all tax obligations.
Our team at W Wen & Co specializes in providing comprehensive tax consulting services, tailored to the unique challenges of selling property in today’s market. We’re here to help you understand your tax liabilities, explore potential discounts and concessions, and ultimately, make informed decisions that align with your financial goals.