Alternative method

The alternative method requires you to ascertain the base land value and the off-the-plan land value taking into account the effect of infrastructure and value of non-deductibles.

For a full explanation of the alternative method, please refer to Revenue Ruling DA-048v2.

The base land value is the value attributable to the unsubdivided land immediately before any infrastructure is in place taking into account the unit entitlement ratio (UER). It is the product of the market value of the land multiplied by the UER. If there is no subdivision, the base land value is the market value of the land.

The market value of the land is the value for which the property might be reasonably sold, free from encumbrances, on the open market immediately before any infrastructure is in place. This is not the purchase price paid by the vendor, unless it has remained the same since it was paid.

If the property is a lot on a subdivision, the market value will be the value of the parent property before subdivision. The UER is then applied to determine the value of the land.

The UER is the proportion of a lot compared to the total land being subdivided. If there is no subdivision, the UER is 100 per cent.

For example, where a $1 million block of land or shell of a building to be refurbished is divided into 10 equal lots, each lot would have a UER or 1/10 and each lot would have a base value of $100,000.

The infrastructure value is a percentage representing the enhanced value that infrastructure adds to the land before any building works start. It does not represent the actual cost of infrastructure, such as the costs of obtaining the planning and building permits, approvals and other similar costs (infrastructure costs), but the value this infrastructure adds to the land.

Where the infrastructure value increased the base land value by more than 25 per cent, the actual increase should be provided. Where no reasonable valuation method is available, the Commissioner will accept a minimum 25 per cent increase of the base land value as appropriate for multi-lot developments. This figure is based on advice from the Office of the Valuer-General of Victoria.

A claim that the infrastructure value increased the base land value by less than 25 per cent will need to be substantiated with appropriate evidence, such as a recent formal valuation.

The off-the-plan land value is the amount for which the subdivided land might reasonably have been sold on the open market immediately before the contract of sale was entered into.

This value must take into account all infrastructure to be provided in respect of the subdivided lot irrespective of whether it is put in place before or after the contract date, as if construction had not started. The off-the-plan land value does not reflect the purchase price paid by the vendor or the cost of the infrastructure; it is the value the infrastructure adds to the land.

Where the off-the-plan land value of the property has increased by more than 25 per cent because of infrastructure, the actual increase should be indicated. Non-deductible costs are not regarded as being integral to the physical construction or refurbishment of the building.

Examples of non-deductible costs include:

  • Legal or other business expenses in selling the property.
  • Advertising or promotional expenses.
  • Agent’s commission.
  • Goods including furniture packages (even if not on site when the contract was executed).

The GST component in respect of non-deductible costs cannot be deducted.

Construction costs include:

  • Legal costs associated with the permit or bringing the building to completion.
  • Surveyors and consultants fees.
  • Planning permits.
  • Water and sewerage connections.
  • Building permits and other similar fees.
  • VicRoads approval.
  • Gas and electricity approval.
  • Required road access or utilities works.
  • Site decontamination costs.
  • Cost of demolition and removal work.
  • Cost of material, labour and finance for constructing the building.
  • The profit accruing to the builder/developer (in relation to the building only).
  • GST in respect of construction costs after the contract.

GST

This is the GST payable by the vendor in relation to the sale of the property. The portion of the GST claimed in respect of the cost of construction occurring on or after the contract date cannot exceed the amount of GST paid pursuant to the contract of sale.

Amount of construction completed at the date of contract

Determining the amount of construction costs completed as at the date of the contract of sale depends on how the project is managed. This can be either a whole of project approach or a single lot approach.

Whole of project approach

In multi-lot developments, the completion of construction works for the property or the lot, and the issue of the occupancy permit, depends on the completion of construction works for all lots in the development, including the common areas.

Single lot approach

A transferor can use the single lot approach when:

  • The completion of the construction works for the property is not dependent on the completion of construction works for all properties in that development.
  • Separate approvals, including the occupancy permit, can be obtained for the individual lot.

The percentage of construction cost completed for the purchaser after the contract date can also be calculated by:

  • (cost of works constructed after contract date) ÷ (total cost of construction works) x 100

For more information on determining the percentage of construction costs completed as at the contract date, please refer to Revenue Ruling DA-048v2.