Extracting Land from Development Company

Discussion in 'Development' started by Archaon, 21st Feb, 2020.

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  1. Archaon

    Archaon Well-Known Member

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    Hi All,

    Playing around with theoreticals atm, i'll outline the scenario below.

    Barney starts a property developing company and purchases a development block for $700,000.

    Barney needs to inject $330,000 capital into the company to cover purchase/interest/development costs for the development.

    After completion Barney will have a house valued at $600,000, 2x 450m2 blocks of land valued at $220,000 and a 3rd block with approved builders plans under a s88 instrument possibly valued at $220,000 also.

    The question is, were the company to pay back some of the capital investment to Barney in the form of the S88 instrumented lot, would the value of that capital be the estimated value or, the cost of creating said lot?

    I'd imagine there would be GST payable by the company, and Stamp duty payable by Barney.

    Any other advice would be greatly appreciated from those far more knowledgeable at Business/Developing an I.

    Regards,
    Arc

    @Westminster @Sackie @Brady @[email protected] @Terry_w @lixas4
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Hunh?

    Company pays back Barney $330k plus interest if that is the agreement.

    And PS on completion Barney doesn't have anything, the developing company does providing they were the owner of the project site.
     
  3. Archaon

    Archaon Well-Known Member

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    If Barney were to take part payment of the block of land with the S88, how would value be calculated.

    I'd imagine Stamp duty would be calculated on the estimated value of $220,000.

    ~ Would it be $220,000 of the $330,000 initial investment?
    ~ Would it be transferred 'At Cost' (i.e $75,000 of the initial $330,000 investment), would GST be payable transferring into Barney's name?
    ~ Any other scenario I'm un-aware of.
     
  4. Terry_w

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

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    How did Barney 'inject' money into the company?
     
  5. Archaon

    Archaon Well-Known Member

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    I know I'm putting the cart before the horse, but I don't know what the optimal way to do said injection would be, so I don't know.
    I know there would have to be some sort of agreement in place.
     
  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Evidently I read the original part all too quick, sorry!

    So I suppose the answer comes down to structure, legal agreements and tax

    Worse case scenario it's deemed to be repaid at $75k with transfer duties at $220k plus all sorts of legal and accounting issues.

    There might be some smart ways to do it where Bart is part owner with the company, deed of partition, subdivision and the title is transferred to him. This wouldn't pay back the full $330k though of course
     
  7. Terry_w

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

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    If it was a loan the company could pay back the $330k without tax. But if transferring a lot it would be a cgt event.
     
  8. Archaon

    Archaon Well-Known Member

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    The reason I was thinking of extracting the land back put, is I could then build the approved plans in my personal name and more into the property as a PPOR.

    So my best bet will be to lend the company the money under a loan agreement sell all the blocks of land, pay GST and pay back the loan to myself essentially?