2. Structures for Investors Presented by: Kerrie-Anne Bailey KAS Tax & Business Solutions Phone: (07)
April 2011
The Ultimate Property Women Weekend- 9th & 10th April 2011

3. Agenda Getting the most from your investment property
Capital Gains Tax
Tax considerations for property development
Structuring with another party
Case Study
The Ultimate Property Women Weekend- 9th & 10th April 2011

4. 1. Getting the Most from your Investment Property
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5. ASSESSABLE INCOME – ALLOWABLE DEDUCTIONS
Taxable Income
TAXABLE INCOME =
ASSESSABLE INCOME – ALLOWABLE DEDUCTIONS
Increase your deductions and the taxable income decreases
Consider the list of deductions page 11
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6. Deductions - Depreciation
Low cost assets – immediate write off
Balancing adjustments on sale
Capital Works
Engage a quantity surveyor they save money!
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7. Repairs and Maintenance
You Can Claim:
Repairs and maintenance directly related to the wear and tear of the property from renting it out
You Can’t Claim
Replacements – replace a fence of kitchen
Improvements – landscaping, renovations
Initial Repairs – repairs existing at purchase 
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8. Interest and Borrowing Expenses
Deductible so long as it is incurred to gain or product income
Need to consider the purpose of the borrowing
Careful if you mix investment borrowings with private borrowing
Borrowing expenses – lesser of 5 years or loan term
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9. 2. Capital Gains on the Sale of your Investment Property
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10. Capital Gains Capital Proceeds LESS: Costs EQUALS Gross Gains
APPLY: Losses – Current or Carry Forward
LESS: Discounts available
EQUALS: Net Gain – to be included in Assessable Income
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11. ASSESSABLE INCOME – ALLOWABLE DEDUCTIONS
Taxable Income
TAXABLE INCOME =
ASSESSABLE INCOME – ALLOWABLE DEDUCTIONS
Net capital gains goes into assessable income
Decreasing capital gains reduces taxable income
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12. Capital Gains Rules
Date of acquisition for capital gains is the date the contract was signed
Capital Proceeds are the amount you receive for sale
Cost base – includes a number of facts – refer page 12
Record Keeping Reduces Capital Gains – refer page 17 for checklist
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13. Capital Gains Case Study
Read page 12 of notes
Have a go at the answer!
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14. Capital Gains - Example
Bought property in May 2008 $200,000 including $10,000 of plant
Stamp Duty: $25,000
Jan 2010 spent $30,000 on improvements and claimed $125 in capital works
Sold for $500,000 including $2,000 of plant
Sale Costs: $12,000
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15. Capital Gains - Answer Capital Proceeds: $498,000
LESS: Cost - Purchase $190, Purchase costs $ 25, Improvements $ 29, Sale Costs $ 12, $256,875
Gross Gain $241,125
Less 50% discount $120,563 net gain $120,563
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16. 3. Tax considerations for property developments - Income Tax - GST
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17. Taxation of Property Developments
Capital Gains i.e. Develop and Hold
Income i.e. Develop and sell
Trading stock i.e. Running a ‘property development’ business
The Ultimate Property Women Weekend- 9th & 10th April 2011

18. Tax treatment – One-off transactions
Capital
Profit taxed as a ‘capital gain’ under CGT provision
If owned > 12 months ….. 50% CGT discount may apply
Taxed in the year the contract is signed
Income
Profit tax as ‘income’ (i.e. sale proceeds less costs)
Taxed in the year the property is settled
GST Issues
The Ultimate Property Women Weekend- 9th & 10th April 2011

19. GST on Property Development
Do you need to be registered for GST
Type of Transaction
Is there GST on the Transaction
What is the amount of GST

20. GST on Property Do you need to be registered for GST?
Need to be carrying on an enterprise; AND
The turnover must be greater than $75,000.

21. (unless margin scheme applies)
GST on Property
Old residential
New residential
Commercial property
Does GST apply?
Input taxed
Taxable supply
Amount of GST?
No GST
10% *
(unless margin scheme applies)
Note: * GST of 10% applies to sale consideration (unless margin scheme applies)

22. What is New Residential?
Not previously sold as residential
Created through substantial renovation
Built to replace demolished premises
Note: Exemption if rented for 5 years
Substantial Renovations
Renovations must affect building as a whole
Must replace substantially all of the building

23. Margin Scheme GST only payable on margin
Margin = Sale Price – Purchase Price *
* Purchase price excludes development costs
Note: You can not use the margin scheme if you claimed the full GST on the purchase

24.   Margin Scheme Apply the margin scheme when:
Purchaser is not registered for GST (i.e. cannot claim back any GST paid)
Benefit: margin reduces the sales price 
Do not apply the margin scheme when:
If property purchase had GST 

25. Case Study Facts If he applied the margin scheme:
Homer is a builder and registered for GST
Purchases land with no GST for $150,000
He paid $1,100 in legals and $7,000 stamp duty
He builds a house for $110,000 and sells it for $325,000
If he applied the margin scheme:
Margin will be $175,000 (i.e. $325,000 less $150,000).
GST will be $15,909(i.e. 1/11th of the margin)
Claim input tax credits of $100 (legals) and $10,000 (building)

26. 4. Structuring with another person
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27. Purchasing Entity Tax effectiveness Risk Factor / Asset protection
Compliance costs
Other issues
– do you understand the structure?
– will the bank lend against it?
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28. Different structures Sole Trader Partnership / Joint Venture / PSA
Company
Trust
Super Fund
Refer p 40 for a summary of the entities

29. Joint Venture v Partnership
What is a joint venture for tax?
Not a separate tax entity
Sharing output
Refer p34 example – calling it a joint venture is not sufficient
What is a partnership for tax?
In receipt of income jointly
The Ultimate Property Women Weekend- 9th & 10th April 2011

30. Accounting and Tax Treatment
Joint Venture - Each Joint venture participant is treated separately for tax and accounting
Partnership- Separate entity for tax need to lodged accounts and tax return for the partnership.
The Ultimate Property Women Weekend- 9th & 10th April 2011

31. Joint Ventures and GST Two options: Deal with GST individually
Become an approved GST joint venture entity

32. Checklist
Refer to page 42 for a comprehensive checklist prior to forming your joint venture.
Joining with another person can be very effective but can also be problematic if you do not clearly outline the terms up front!

33. Profit share Agreement
This is a legal agreement between the parties
Usually a land owner engages a developer / builder to assist with the development of the land and the builder obtains a fee dependent upon the final profit
Each party retains their own tax profile
The developer does not have a disposal power over the land so the property is not treaded as trading stock for the developer

34. Case Study – Page 39 Facts Discuss?
Mr Reno owns a block of land and Meets Mrs Build a developer and builder
They enter into a JV and construct 10 units.
Mr Reno contributes land and 10% of costs
Mrs Build contributes her skills and 90% of costs
At the end each party obtains 5 units
Mrs Build obtains a 50% interest in the land as tenant in common prior to commencing
Both parties agree to be a joint venture
Mrs Build is nominated to be the GST joint venture operator.
Discuss?
GST / Tax / Stamp Duty

35. 5. Record Keeping
The Ultimate Property Women Weekend- 9th & 10th April 2011

36. 6. Record Keeping Keeping Records Saves Tax!!!
Purchase / Sale documents
Rental expenses – refer checklist in paper
Interest / Loan details – get it right!
Improvements and purchases
Capital Gains Tax receipts.

37. Questions?
Presented by: Kerrie-Anne Bailey KAS Tax & Business Solutions Phone: (07)
The Ultimate Property Women Weekend- 9th & 10th April 2011