Building a New House to Sell — Immediate Sale vs Holding 12+ Months

For investors considering a house-and-land package with a clear exit strategy, the decision of when to sell can significantly affect the after-tax outcome. Under current Australian tax settings, timing interacts with capital gains tax (CGT) rules, the risk of revenue-account treatment, and GST obligations on new residential premises.

Selling Immediately After Completion

An immediate sale (or sale shortly after the occupancy certificate) carries several tax and commercial realities.

If the ATO views the project as a profit-making undertaking or part of a development business — based on your intention at the time you acquired the land and the surrounding facts — the profit is taxed as ordinary income on revenue account. In that case the 50% CGT discount is unavailable and the full gain is taxed at your marginal rate. Even a one-off project can fall into this category if the activities go beyond mere realisation of a capital asset.

Where the sale is treated as a capital gains event instead, the 12-month ownership test is not met, so no 50% discount applies. Ownership is generally counted from the date you acquire the land (or enter the relevant contract). Selling before the 12-month mark means the entire net capital gain is included in your assessable income.

GST is also a major consideration. The first sale of new residential premises is a taxable supply if it is made in the course or furtherance of an enterprise and you are registered or required to be registered for GST. The buyer must withhold GST at settlement (usually 1/11 of the price, or 7% under the margin scheme) and remit it to the ATO. You may be able to claim input tax credits on construction costs, but the net GST cost reduces your profit. Premises generally remain "new" until they have been sold as residential premises or continuously rented for five years.

Holding costs during construction (interest on the land loan, rates, insurance) are typically not immediately deductible if the intention is to sell rather than rent. These costs are usually capitalised into the cost base or deducted against the eventual profit under the relevant rules.

The commercial risks are equally important: construction delays, soft market conditions at completion, and the cost of bridging finance can erode the projected margin.

Selling After 12 Months (or Longer)

Holding the completed property for at least 12 months before signing a contract of sale opens the possibility of the 50% CGT discount — provided the property is accepted as being held on capital account. For eligible new builds, investors also retain the ability (even after 1 July 2027) to choose between the 50% discount and the new cost-base indexation method plus 30% minimum tax, whichever produces the better result.

A longer hold also improves the prospects of demonstrating a genuine investment intention (for example by renting the property for a period). Documenting that intention from the outset — finance applications, quantity-surveyor reports prepared for rental, leasing efforts — becomes critical evidence if the ATO later examines the transaction.

GST rules remain relevant while the property is still "new." Continuous residential rental for five years can eventually take the premises outside the new-residential category, but active marketing for sale can interrupt that period.

Practical Takeaways for Investors

• Intention at the time of acquisition is decisive. A documented plan to hold as a rental before any later decision to sell is far safer than a pure flip strategy.
• Professional advice on structure, GST registration, margin scheme eligibility and cost-base calculations is essential before contracts are signed.
• Cash-flow modelling should include construction-period holding costs, GST withholding and the tax on the full (undiscounted) gain if the 12-month test is not met.

House-and-land packages remain attractive for investors who want the option of a later sale, but the tax outcome depends heavily on facts, timing and documentation rather than on the package itself.

Important disclaimer: This material is general information only and does not constitute tax, legal or financial advice. Tax outcomes depend on your individual circumstances, the precise facts of the transaction and any future legislative changes. Always obtain advice from a registered tax agent or qualified adviser before entering into any property transaction.