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 the value of the non-deductibles.
The base land value is the value attributable to the un-subdivided land immediately before any infrastructure is in place taking into account the unit entitlement ratio (UER).
Market value of land to be subdivided by the unit entitlement ratio (UER).
The UER is the proportion of a lot compared to the total land being subdivided.
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.
If there is no subdivision, the UER is 100 per cent.
The UER is the proportion of a lot compared to the total land being subdivided.
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 of 1/10, and each lot would have a base value of $100,000.
If there is no subdivision, the UER is 100 per cent.
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,
- Agents commission, and
- 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.
The off-the-plan land value is the amount for which the subdivided land might reasonably have been sold for 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 date of the contract, as if construction had not commenced. The off-the-plan land value does not reflect the purchase price paid by the vendor to acquire the property, or the cost of the infrastructure, it is the added 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.
The percentage cost of construction works to the purchaser which will be completed after the contract date is:
- (Cost of works constructed after contract date) ÷ (Total cost of construction works ) x 100
Construction costs
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,
- Vic Roads 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), and
- GST in respect of construction costs after the contract.
For assistance in determining the percentage of construction costs completed as at the contract date in relation to ‘single lot freestanding’, please refer to Revenue Ruling DA.048
