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Published byAntoine Cheyney Modified over 8 years ago
Sunshine Coast Property Network Wednesday 22 August 2012 Accounting and Tax Issues for Property Developers
Why are you here? Are you a stress junky, have lots of patience, money to risk and want to argue about small but potentially costly issues? OR Do you want to try and improve your financial position and make MONEY!!
Topics Covered Today ― Most common legal structures for property development ― Advantages and disadvantages of the most popular structures ― GST and the margin scheme
Disclaimer The information contained in the presentation today is general in nature and should not be relied upon by anyone without first consulting a professional on the application of any of the information to their circumstances and their own issues.
― The income tax payable on any profits; ― Your ability to access profits for private use; ― Your ability to access capital gains tax concessions; ― You access to any losses made; and ― Your personal liability exposure. The Development Structure Will Affect
Ownership Structure ― Determine the structure prior to purchase – have an entity set up ready to go ― Change to your structure can be costly ― Consider your circumstances – one size does not fit all.
Five Basic Structures 1.Individual or Sole Trader 2.Partnership 3.Company 4.Trust 5.Superannuation Fund ―Company and Trust are most common
Private Proprietary Company Advantages of Company Structure: ― Company is a separate legal entity and its use creates a limitation of personal liability ― New investors can easily be admitted as a shareholder ― Flat rate of 30% tax
Advantages of Company Structure Continued: ― Shareholders have a clearly identifiable entitlement to income and capital ― Profits can be retained in the company ― The structure can be used with a holding company for tax effect. Private Proprietary Company
Disadvantages of a company structure : ― 50% exemption for capital gains tax not allowed ― Difficult for tax-free amounts to pass to shareholders ― Directors can still be held personally liable ― Can not distribute losses to shareholders
Unit and Discretionary Trusts ― Unit Trust: used by non-related investors looking to ensure their investment entitlements are clearly identifiable ― Discretionary Trust: generally used by family groups and have no fixed entitlement to income or capital. Distributions are at the discretion of the trustee
Unit Trust Advantages of a Unit Trust: ― Provides asset protection when used with a corporate trustee – Not for the individual investor ― Unit holders have a fixed interest and entitlement ― The 50% CGT discount is available ― Profits can be passed out to investors without tax having to have been paid which can be seen by some investors as a benefit
Unit Trust Disadvantages of a Fixed Trust: ― Can not distribute losses to individual investors ― Income must be distributed at year end or is taxed at highest marginal tax rate
Discretionary Trust When used with a company trustee the structure can be used as either: ― The investment entity by which you hold your interest in the development; or ― The actual entity carrying out the development
Discretionary Trust Advantages of a Discretionary Trust: ― Provides excellent asset protection with a corporate trustee ― Liability can be limited using a corporate trustee ― Flexible capital and income distributions ― Access to the 50% CGT discount ― No restrictions on tax free distributions
Discretionary Trust Disadvantages of a Discretionary Trust: ― Can not distribute losses to beneficiaries ― Beneficiaries do not have a transferrable interest
Self Managed Superannuation Fund (SMSF) ― An SMSF can not generally undertake a development directly ― Main use is as an investor to receive profits and an additional source of capital ― An SMSF is a variation of a trust structure so requires a trustee and deed
Self Managed Superannuation Fund “How much do I need to start one?” This question is hard to answer but you need to look at the following: ― Why do you want to own an SMSF? ― What would you like to do with the money? ― Do you understand your obligations? ― How much do you already have in super?
Self Managed Superannuation Fund How much do I need? ― Base level say $100,000 relates to fees you are already paying ― Allow $2,500 minimum each year What do I need to set one up? ― A trustee which can be a company or individuals. Use a company it will be easier in the long run ― Cost is around $2,000
Self Managed Superannuation Fund Disadvantages of a Superannuation Fund: ― Difficult to access profits ― Highly regulated and restricted operations ― Can impact on your ability to borrow
Trust Structure – Working Example Audience participation time!!
GST and Property Development ― GST applies at all stages of the development ― Check registrations – www.abr.gov.auwww.abr.gov.au
GST and Property Development Three similar scenarios with three different GST outcomes: 1.Build to rent a property for 3 years 2.Build to sell a property 3.Build to rent but change my mind and sell it (female developer)
GST and Property Development Many issues to consider but selecting two to discuss and build some knowledge around are: ― When do I register for GST? ― The Margin Scheme
GST and Property Development When to register: ― Carrying on an enterprise and turnover is over $75,000 of income ― Do not register unnecessarily
Margin Scheme ― Concession on GST payable on the sale of certain new properties ― GST payable equals to one-eleventh of margin ― Calculation of acquisition price ― No input tax credit for a purchaser ― Both parties to agree to the application
Example – Purchase farmland from unregistered person ― Developer purchases farmland ― Vendor is unregistered – vendor is unsure whether of not to register as it is an old business asset ― Sale price is $500,000 ― No need to register as capital receipt to retired farmer
Example – Purchase farmland from unregistered person (cont.) ― No disadvantages for the vendor from not registering ― Developer saves money in stamp duty ― Margin Scheme can be applied to the sale of their developed product
Conclusion Having assisted property developer clients for 50 years, William Buck have a unique knowledge and expertise concerning this industry. We are happy to assist with any accounting and taxation queries or advice that you may require.
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