Developing in a partnership - accounting queries

Hello All,

I'm trying to understand how a partnership structure works for a development, compared to a trust structure which I am more familiar with.

The hypothetical situation is existing land in two joint names on title, wanting to defer CGT and stamp duty by not moving to separate entity.

The two joint names set up a 50/50 partnership, ABN, register for GST, etc.

Now when the construction costs arise, for a FY there will be losses, in a partnership structure these loss can only offset individual income, not carry over to next FY?

Once the development is completed, new strata titles, the building is constructed under the Partnership and the land under individual names, now how are the two 'merged' from an accounting aspect?

Does the partnership continue to exist until the development is all sold?

Thanks in advanced.

 

A partnership is not a separate legal entity, but it is treated as an entity for tax - similar to trusts.

Are you saying you want the partnership to have a different percentage to the legal ownership?

Alternatives might be a development agreement with a related entity to develop the property.

 

if doing a development agreement in Victoria just be aware of the economic entitlement provisions Economic entitlements | State Revenue Office

 

Hi Terry, thanks for the response.

The partnership would still be in a same ownership percentage. i.e. 50/50 split.

I understand the partnership is for tax, as you can't register for GST on two joint owners?

but once the development is complete, does the partnership cease to exist, and it goes back to joint names, or is it ongoing while the development is owned by joint names.

 

The partnership will be 50/50 unless there is some other legal basis for that % to be fixed in another amount. A hybrid or unit trust can also achieve the same things but perhaps with less joint & several issues and also with a indefeasible right to income rather than a promise to each other. It may also assist some (not all) elements of asset protection.

For GST and Income Tax purposes the P/Ship obtains a ABN and TFN and registers for GST. Not the individuals.

The partnership continues until the venture stops (and tax and GST etc registratyion is concluded). If a new partner comes on board the old partnership ends and a new one must commence in its place. I assume the property is being sold. A partnership cannot actually own land.

Warning : Partners in the partnership cant also be paid. Its like a partnership cant pay salaries to the partners and claim any deduction. There may also be workers comp issues to consider.

The losses you speak of may be imapcted by the new rules that stop deductions being claimed. Tax advice would be wise.

I would be seeking legal advice before doing a single thing

 

Thanks Paul for the info. I do agree with the professional advice.

I'll leave this here, if any professionals from Perth is able to offer in person services on the above, please get in contact.