Developing - When does profit occur ?

Sometimes a entity will seek to develop for profit. Developer profits occur over the longer term and are often reported for tax purposes as sales less their costs. Its important that costs to construct are allocated to each lot / unit to assist this. So when 4 of ten 3 bedroom apts are sold then 4/10th of profit / GST etc can be recognised and the balance in the next period / year etc.

But when a builder builds a development this isnt always the case.

In these cases the structure and its whole process needs to be considered. For example BuildCo may invoice Devco for ongoing staged progress payments. Well each progress payment that Buildco issues will contain a share of profit. Construction profits - Not the development profits.

This same principal can be used by developers that arent massive. The Builder can spread construction profit over the project life rather than when sales occur. The "profit per unit" is then recognised when the specific lots / units are sold.

This generally assists to spread over more than one financial year and is an important element of structure AND tax outcomes. It can also asset protect one entity v's another. The legal structure at this point makes a lot of sense...especially if a creditor argues they are owned money and there isnt any after the build ends.

Its often overlooked by smaller developers especially those that seek to save costs. They end up will 100% of profits at completion when they could have reported some earlier. This can even be favourable for project finance issues.