Joint ventures -what are the basics to protect each party?

We aren't doing a development as such, just buying land and putting a single dwelling on it.

 

Developing occurs if its sold, gifted, optioned, transferred or partitioned in most cases. Build and hold a different case sometimes. Lets use Harry Tirigguboff as an example. He holds loads of Mirvac apartmnets for years. NONE are ever a CGT issue as Mirvac develop. Their primary income comes from building - to sell.

A build to own long long term isnt a development. Its a construction. Selling down to reduce debt is also profit making.

The "we" may also be an enterprise.

 

@Paul@PFI you keep raining on my parade!

 

@Paul@PFI im trying to explain all of this to my mother- she is asking me why is it different to when you buy, hold sell an IP?
Shouldn't CGT be the only tax to apply since all IPs are purchased with intent to profit via either CG or yield?
Is it only a GST issue because it's a new dwelling?

 

Personal tax advice is recommended. The penalties for getting it wrong are significant.

1. CGT isnt applicable when you seek to make a profit. Ordinary income tax applies to the profit.
2. GST applies to new premises and land sales made by an enterprise

My developer toolkit explains many of the concepts

 

I thought I might ask my question in this thread rather than starting a new one.

My possible joint venture situation (rounding numbers).

I own a parcel of land in my name with DA approval for 10 townhouses.
A builder I know is interested in 50/50 joint venture.
Land Value with DA: 2.5M
Total build costs: 2.5M
Basically builder constructs the 10 townhouses and we both end up with 5 each.

What are the types of structures that are possible in this scenario, that are mutually beneficial?

I know I will also eventually bring this to an accountant (doubt my current one will be up to scratch) and lawyer, just like to "arm" myself, really appreciate any points that I can research further.

Thanks

 

I'll have a chat to you if we end up deciding to do anything. For the time being too stressful for me I'd rather just buy a regular IP myself

 

Many ways. Does funding require the property to be mortgaged.?

You could keep in your name and get finance under commercial terms with you provide mortgage and you and him borrowing.

Or sell now to another entity.

Etc

 

Thanks Terry,

No funding required.
I'm concerned about transfers costs buy selling to another entity, this is IP land that I have owed for sometime, so the CG will be substantial, assuming selling to another entity will always attract CGT and stamp duty.

My simplistic way of thinking about this is...

Builder "pays" me $1.25M for half land, I "pay" him $1.25M for half the build cost. The numbers happen to actually line up exactly this way. In reality the builder will pay for the total build and I transfer 5 units to builder on completion.

What I'm really interested in regards to the structure is if it's possible for no transfers or change of title saving CG and Stamp Duties, so keeping everything separate until the very end at completion?


I think I'll be calling you in the near future...

 

Sounds like taxable GST supplies if you get it wrong. I have seen informal contracts treated that way so take care as it also triggers duty,. Certainly no CGT when a enterprise is the project.

You know income tax predates CGT ? You plan a profit think income tax not CGT. Structure does not affect duty. Changing structure will.

 

If the builder pays you for half the land this would be a dutiable transaction and attact stamp duty and CGT.

What you could do is to enter a joint venture agreement with the builder, carefully structured so that nothing is transferred or assigned, and the builder will do certain things for certain fees. All of you can jointly apply for finance if need be.

 

Thanks Paul,

I'm almost 100% certain that this will be GST for any sales at completion, reading your Developer Tool Kit, it pretty much ticks all the boxes.
The CGT and Duties I was referring to were "going in", if we were to transfer to another entity (Trust or Company) or bring the Builder onto the title. @Terry_w has clarified that in the above post. I have also see the below from Terry on one of his fantastic "Tips" thread which pretty much nails my situation.

So, thank you both and its definitely one for the experts!

"Joint Venture Agreements – these are complex from a legal and tax point of view, but one party can own the property and the other party can develop the property for a fee. If structure well the fee can be deductible to the owner of the property and be income to the developer. The benefit with this approach is that it can be used for property already owned without triggering stamp duty or CGT – but legal advice is needed as sometimes duty can be triggered."