Developing multi unit under Trust or Development Company

Discussion in 'Legal Issues' started by shootingfish, 6th Aug, 2018.

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  1. shootingfish

    shootingfish Well-Known Member

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    Normally for larger developments I would be inclined to just use a standard Pty Ltd to own the land and build the project instead of a trust but for this scenario, it is a two-unit site with a net profit of let's say $400k

    The options to own the land and develop the property:

    • Develop under personal names so one place will be PPR to be lived in for a few years (yes, I understand the proposed issues but we will not go there in this thread).

    • Develop under a Family Trust, double the land tax, maybe not need to deal with margin scheme, perhaps have option to hold one for a year and get a bit of a CGT deduction.

    • Develop under a Development Company Pty Ltd, reduced land tax bill, reduced risk if something goes wrong as won't affect other assets,
    We have done one development about 3 years ago and that was meant to be lived in but sold off without any cgt deductions.

    All individuals are well beyond the 30-40% tax bracket so main decision considerations will be:

    Finally getting a PPR and getting it tax free when selling it off in a few years.
    Using the development company as evidence of revenue for later borrowing capacity.
    Reducing risk to the family trust if it holds other assets.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Is there a question in there?

    you should seek specific legal advice as it sounds like you know enough to be dangerous to yourself.
     
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  3. Ross Forrester

    Ross Forrester Well-Known Member

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    If you want a unit trust invest into or the relationship will work and how to manage disputes. A company will normally give you a preset (limited) course for disputes with the corps law etc but a unit trust needs more consideration.
     
  4. shootingfish

    shootingfish Well-Known Member

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    Whoops no question.

    Question is, how do most peope do developments, under the name of company (not the corporate trustee) or trust?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Do you want to be like most people?

    The majority probably do it in their own name, some do via a trust, others via a company.
    But what you should do may be different as it will depend on the type of project, where it is located, financing, appetite for risk, need for investors etc etc.

    The ideal would be a combination of trusts and companies, but exactly how all integrated will depend on the details
     
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Why do you mention CGT ? First rule of development profits is they are not capital gains. And why wont margin scheme be applicable ? Standard GST instead ? or not a taxable supply ?

    How can you sell off in a few years using a trust OR company - tax free ?? That said how can different owners each have a main residence with 100% exemption ?? (There is one way but its complex and requires legal advice...Miss that and its not 100% CGT free)

    A range of issues indicate that tax plan for this site isnt sound and based on this the profit could well be $0. If you cant plan taxes then how can you plan a project ?
     
  7. shootingfish

    shootingfish Well-Known Member

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    Realisation of an asset, intended purpose was for own home but market conditions meant it was more favourable to sell off than live in. This was over a period of 4 years.

    Same owners.

    The original idea as we don't have ppr, was to just build under our own names, live in one and sell off the other. This is commonly done - what is the issue? Just value before demo, split the valuation and pay the cgt on half the land valuation + cost of build less sell price on the unit being sold.

    In any event, yes, developments are revenue based.

    Yes, I agree, 30% tax on $0 is Nil taxes.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Isolated profit making scheme
     

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