Hi All, Also posted on this in Innovative techniques. Here is the scenario. I purchase land in my name. (NSW) Finance provided by a friend for entire purchase price. Land to be immediately flipped and net profit shared equally. Can JV agreement be made to minimise tax in any way? GST implications? Ta, RS
Tax law doesnt have a "JV" option. It could be a partnership and profits shared based on what was agreed even verbally. And Yes likely GST may apply (depends). Did you sell using the margin scheme in the contract of sale ? Are you able ?
Thanks Paul, We haven't settled on the land yet so it hasn't been listed for resale. If it is a partnership set up as a "one off" buy and resell venture would gst apply? Could it in anyway be set up as a mortgage agreement with terms as x% interest p/a + 50% of share in net profits? Not sure if there is any benefit in this?
Yes - Possibly. The ATO don't care about one off. (Tax Rulings MT 2006/1 and MT 2006/6 are a pigeon pair that tie ABN / GST and address one-off issues) The rules are very clear and address turnover where it exceeds $75K. So strategies to identify how to avoid / reduce GST must be considered to avoid a expensive error. I argue if you buy some land you may end up losing the value of GST in profit however if you buy another it maybe OK. If the partners use a written agreement made prior to the venture I would consider it a partnership agreement for tax purposes. Likely two documents are needed. First is P/ship agreement for profits and other is Partner A lending to Partnership (entity?) and terms of loan. So profit is determined after interest is deducted and 50?50. So one partner will earn interest and get 50% and other just gets 50%. Important a lawyer draft the terms - simple but functionally important to avoid 1 owner being slugged all profits and interest being deductible !!
In a similar situation I was responsible for the tax and CGT as far as the ATO is concerned, however our JV agreement addressed this issue so that behind the scenes our business partner was responsible for half and had to pay their share to us directly.
So your friend would pay for a block of land but put it in your name? Why? Seems like a bad deal for them
