1:4 subdivision loan

Thanks. I’m so frustrated as I’d done everything I thought I needed to before buying the property to make sure I’d be able to borrow the money to carry out the civil works and now to be hold “not interested”.
Im going to call my town planner tomorrow to see how I’d go getting the staging changed? As I’ve got it approved in 3 stages. Stage 1 8000m2 split in half 2 x 4000m2 and then state 2 and 3 is then to split each 4000m2 further into 2000m2 blocks.
I’m now trying to find out about tax and gst so I can ascertain exactly what I’m up for to work out my profit because I may just bite the bullet and go with the non bank lender and just have to suck up the fact that I’m paying a ***** load of interest and fees.
I’ve definitely learnt from this experience and hopefully next time I’ll be smarter.

 

I would suggest looking up "How not to be a developer" at the bantacs website.

As for the DA stages I would've recommended stage 1 being 6000m2+2000m2 => sell small one fund the rest, though I have no insight into the details of the site or works involved.
May be worth asking the question though.

 

Commercial loans aren't terrible. Yes they are more work but the positives generally outweigh the negatives.
The best thing about commercial is the ability the capitalise the repayments which sounds perfect for this situation. I've borrowed a mere $1.5m from Westpac commercially so there is appetite at normal banks for this. You would need to refinance the existing loan to the new bank and then they would lend for the civil works based on end values.
I would say that there would be a fairly mainstream lender that would do this. However as mentioned they need an exit strategy and that might be presales. This would mean that they give you conditional approval on a loan on the condition that you have a sales contract on 1 or 2 of the blocks. You would need to list them for sale, enter a contract, then the bank would release the funds and you do the works and complete the sale.

 

I chose the 2x4000 as the current site is unsewered and to

Westpac had originally said they’d do exactly what you’ve suggested (12 months ago) so I gained DA and now I’m ready for operational works they’ve come back to my broker saying they have no appetite for this type of development (even with pre sales) so I’m confused and annoyed. Apparently ANZ and CBA have said the same thing. My development falls in to a grey area of lending. I’ve been advised St George might be more favourable so I’m going to have a chat direct with them as my current commercial non bank offer is stretching my level of comfort and the last thing I want is to jump in head first and then find I’m struggling to make the hefty repayments if we happen to run over time etc.

 

St George will not look at this as its too small for the commercial arm of development.

I suggest you get in touch with another broker and get them to look at the fine details of your scenario and then give you some recommendations/solutions.

Rolf up your way and is an experienced broker so I think its worth while you touch base with him and get the second opinion.

 

Since we are in a 3 day lockdown here in Brisbane and I'm avoiding doing any housework, I thought I'd offer an update on my loan situation.
I managed to get finance through Westpac at 2.8% (IO) for 2 years as a commercial loan separate to our home loan. We refinanced our home loan over from ANZ to Westpac and then borrowed the extra funds required for the civil works via a separate loan secured against the home (borrowed in my company name to avoid issues with the responsible lending act). The bank carried out a commercial valuation (no charge) and the figures stacked up so we got approved. It was a long road but I got there in the end without having to fork out for big application fees etc. It's definitely a learning experience and hopefully next time it will be much easier now that we know what to expect and the fact we now have a great contact that knows her stuff.

 

I think you may have a serious tax issue. Who used the money the company borrowed?

 

I will be using it (personal name). Nothing spent as yet as loan only came through in late November, please shed some light if you like?
I should explain that the company isn’t a trading company and makes no money, not sure if that makes any difference? I’m the guarantor of the loan (my personal income is servicing the loan) for the company and I’m also the director.
if have any tips for questions I should raise with my accountant please let me know because my discussions have not flagged any issues but I’d prefer to not have any surprises.

 

Get some tax advice asap. You are going to have to enter into a written loan agreement with the company on Div7A terms at a benchmark interest rate, otherwise you could lose 47% of the amount of the loan in tax.

Who suggested you have a company borrow money?

 

The broker and bank. Because my PPOR is involved and I’m creating 4 lots I wasn’t able to borrow in our personal names for development due to some rule that came into play with the banking inquiry. The other option was to sell the property to the company but then I was up for $50k stamp duty and wasn’t entitled to any PPOR tax exemption.
My accountant has been out of action due to a family issue that’s seen him have to go interstate so I’ve had limited dealings as I’m trying not to bother him. He will be back mid January and I’m meeting up with him then so I’ll bring up your concerns.

 

You might need to sue the broker, so keep good records.
Breaches of the NCCP Act too and you probably would have breached corporations law.

 

Ok that sounds full on. Is this something I should talk to the ATO about or my accountant?

 

It is serious. Could be a crime too. Obtaining a financial advantage by deception. Broker would lose their credit licence.

It is a div7A issue for sure. But you can borrow from a related company under a complying loan agreement. It would need to be at the benchmark interest rate and a PI loan over 7 years. You could subdivide and refinance to repay the company as soon as you can so the tax side may be no big deal if it is a short term thing.

What did you tell the lender the company was borrowing the money for?

 

We were completely honest, we had to supply the bank with heaps of paperwork. The DA, all the quotes from the civil contractors, council contributions, town planning consultant, engineer etc. The bank manager was fully aware and was quite knowledgeable regarding subdivisions because she’s done them herself. We had to get a commercial valuation carried out and provide him with the DA so he could assess the end value etc. It was more or less a business plan to show the costs, expected sales, exit strategy and our construction experience.
My husband had to get a solicitor to sign a certificate to say he was aware that he was a guarantor of the loan. I didn’t have to as I’m the Director but my husband isn’t part of the particular company borrowing the money.
You’ve got me worried but we have been completely upfront.

 

The mortgage and development loans will all be paid in full from the sale of the lots so it is very short term in respect to lending.

 

You might be a star at a future Royal Commission.
It wasn't ANZ was it?

If you have disclosed everything you might have a case to argue against criminal charges, but there will still be a problem on the tax side. The fact that it is short term will make it less painful.

Was the company set up just for this? It should have been acting as trustee and then you could have avoided Div7A issues potentially.

 

It was set up a couple years ago when I was thinking of getting into development but I hadn’t done anything with it. It is trustee of a discretionary family trust.
The lender is Westpac

 

If the company is a trustee and borrowed in that capacity you might be in luck

 

Thanks Terry, I'll double check it all out mid Jan when my accountant returns and in the meantime I wont drawn down any of the funds just incase. The last thing I want is to get in trouble.

 

I don't see any harm in drawing down the funds now - if they are available. Just make sure the trustee has the powers to lend a beneficiary money and have a written loan agreement - which you need a lawyer for.