Revolving property markets along with ever changing legislation from the ATO, State Government, and Foreign Investment Boards can present a challenge for property and construction businesses. Property development can include activities ranging from the renovation and the re-lease of existing buildings to the purchase of vacant land and sub-division for sale or building development. Income tax is only one small part of the overall picture as the Developers and Builders need to consider other areas such as Business structures, State Taxes, funding structures, pre-market sales and last but not least – Assets Protection Strategies.

At Linton Advisory Group we have the holistic approaches and resources in assisting with the following:

  • Specialist GST, Capital Gains Tax and Income Tax advice
  • Business and Assets Protection Models
  • Economic forecasting, Feasibility Studies, and modelling
  • Capital Raising and Funding

As an active property investor himself, Caxton has years of first-hand experience in both residential and commercial areas and understands the complexities in these areas.  Given the financial aspects are so important to the success of these projects it is crucial for you to have an accountant who understands the mechanics and processes so you can benefit from their experiences and knowledge.

Common Q&A

Q) What is the best way to set up a Property Development Business?

A) There is no “one size fits all” approach as the structures are based on the following factors –

  1. The tax implications of the structure – Income tax vs Capital Gains Tax?
  2. Who are the stakeholders involved with the development – Family members vs business partners?
  3. What kind of development is being undertaken – Project homes vs Apartments?
  4. What would be the intention of the developed project – Build & Hold vs Build & Sell or a combination of both?
  5. Will any additional funding or investors be required at a later date?
  6. The background of the Developers – Owner Builder vs passive investor

Generally speaking, most developers will be incorporated under the following models –

  1. Family Trusts
  2. Unit Trusts
  3. Companies
  4. Joint Ventures

Please note that when choosing the ideal business structures, the issue of asset protection should be highly regarded (rather than purely focusing on taxation implications) as property development is considered as a high-risk business activity. Economic downturn, change of bank policy, new introduction of the property rules, litigation from the employees and contractors etc. can contribute towards the failure of the projects which could leave the Directors exposed under all sort of risks.

Q) Once I have set up the structure, what are the key concerns with the Property Development?

A) As a developer, a few things need to be prepared prior to the commencement of the project –

1) Feasibility Studies – It is important to conduct a feasibility study in order to calculate the return of the investment. As a general rule of thumb, a developer should at least aim for 20% return after all the associated costs and taxes.

2) GST and Margin Schemes – The GST and margin scheme components would have significant impacts on the cash flows and the “bottom line” and thus they need to be reviewed carefully. GST can be applicable at all stages of the development process – from purchase, planning, construction and disposal. The Margin Scheme is applied at the time of disposing the property. It is a concessional method used to calculate the GST payable by reducing the GST of 1/11 of the margin. The margin is the difference between the sale price and the purchase price of the land.

3) Taxation of the profits – The taxation implication is usually based on the structure set up alongside with the Developer’s intention. Generally speaking the profit should be taxed as a Capital Gain or Assessable Income. Tax concession is available on the sale of a property if it is treated as a Capital Gain.

4) Funding – It is important to obtain the necessary funding and approval from the bank prior to the project commencement as different structures could impact the borrowing capacity, risk and lending ratios.

Q) What is “Sale of Going Concern” on project disposals?

A) If the vendor sells property that is part of a GST-free sale of a going concern –

  1. There will be no GST charged on the sale
  2. The vendor and the purchaser may be able to claim GST credits on expenses that relate to selling and buying the property respectively – for example, the GST included in the solicitors’ fees.

Property that is part of a sale of a going concern can include any of the following:

  1. The business’ premises, when it is sold together with the assets and operating structure of the business
  2. A fully tenanted building, where the property and all leases, agreements and covenants are included in the sale

Revolving property markets along with ever changing legislation from the ATO, State Government, and Foreign Investment Boards can present a challenge for property and construction businesses. Property development can include activities ranging from the renovation and the re-lease of existing buildings to the purchase of vacant land and sub-division for sale or building development. Income tax is only one small part of the overall picture as the Developers and Builders need to consider other areas such as Business structures, State Taxes, funding structures, pre-market sales and last but not least – Assets Protection Strategies.

At Linton Advisory Group we have the holistic approaches and resources in assisting with the following:

  • Specialist GST, Capital Gains Tax and Income Tax advice
  • Business and Assets Protection Models
  • Economic forecasting, Feasibility Studies, and modelling
  • Capital Raising and Funding

As an active property investor himself, Caxton has years of first-hand experience in both residential and commercial areas and understands the complexities in these areas.  Given the financial aspects are so important to the success of these projects it is crucial for you to have an accountant who understands the mechanics and processes so you can benefit from their experiences and knowledge.

Common Q&A

Q) What is the best way to set up a Property Development Business?

A) There is no “one size fits all” approach as the structures are based on the following factors –

  1. The tax implications of the structure – Income tax vs Capital Gains Tax?
  2. Who are the stakeholders involved with the development – Family members vs business partners?
  3. What kind of development is being undertaken – Project homes vs Apartments?
  4. What would be the intention of the developed project – Build & Hold vs Build & Sell or a combination of both?
  5. Will any additional funding or investors be required at a later date?
  6. The background of the Developers – Owner Builder vs passive investor

Generally speaking, most developers will be incorporated under the following models –

  1. Family Trusts
  2. Unit Trusts
  3. Companies
  4. Joint Ventures

Please note that when choosing the ideal business structures, the issue of asset protection should be highly regarded (rather than purely focusing on taxation implications) as property development is considered as a high-risk business activity. Economic downturn, change of bank policy, new introduction of the property rules, litigation from the employees and contractors etc. can contribute towards the failure of the projects which could leave the Directors exposed under all sort of risks.

Q) Once I have set up the structure, what are the key concerns with the Property Development?

A) As a developer, a few things need to be prepared prior to the commencement of the project –

1) Feasibility Studies – It is important to conduct a feasibility study in order to calculate the return of the investment. As a general rule of thumb, a developer should at least aim for 20% return after all the associated costs and taxes.

2) GST and Margin Schemes – The GST and margin scheme components would have significant impacts on the cash flows and the “bottom line” and thus they need to be reviewed carefully. GST can be applicable at all stages of the development process – from purchase, planning, construction and disposal. The Margin Scheme is applied at the time of disposing the property. It is a concessional method used to calculate the GST payable by reducing the GST of 1/11 of the margin. The margin is the difference between the sale price and the purchase price of the land.

3) Taxation of the profits – The taxation implication is usually based on the structure set up alongside with the Developer’s intention. Generally speaking the profit should be taxed as a Capital Gain or Assessable Income. Tax concession is available on the sale of a property if it is treated as a Capital Gain.

4) Funding – It is important to obtain the necessary funding and approval from the bank prior to the project commencement as different structures could impact the borrowing capacity, risk and lending ratios.

Q) What is “Sale of Going Concern” on project disposals?

A) If the vendor sells property that is part of a GST-free sale of a going concern –

  1. There will be no GST charged on the sale
  2. The vendor and the purchaser may be able to claim GST credits on expenses that relate to selling and buying the property respectively – for example, the GST included in the solicitors’ fees.

Property that is part of a sale of a going concern can include any of the following:

  1. The business’ premises, when it is sold together with the assets and operating structure of the business
  2. A fully tenanted building, where the property and all leases, agreements and covenants are included in the sale

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