JV profit calculation

Discussion in 'Accounting & Tax' started by Jasper, 6th Mar, 2019.

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  1. Jasper

    Jasper Well-Known Member

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    Hi guys,

    Just wanted someone to check my numbers. I’m looking at investing in a joint venture:
    • Investment amount $100k
    • Investment fee payable $15k
    • Return 50% = 50k
    • Investment period 18 months
    • Interest (18 months @ 4.44%) = 6.6k
    • Overall profit = $27,400 (50k – 15k – 6.6k)
    • After tax profit via Trust (38%) = $17,000

    Have I stuffed up anything? Have I completely overlooked something?


    Thanks for your time.
     
  2. thatbum

    thatbum Well-Known Member

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    What's an investment fee?

    Also, this is just a maths exercise since you haven't given any context yet. And even those basic numbers are setting off all sorts of alarm bells for me. What kind of JV investment has a 50% return in 18 months? A risky one?
     
  3. The Y-man

    The Y-man Moderator Staff Member

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    How much are you borrowing?
    Is the interest amount calculated once in the 18 months, or is it calc daily?

    The Y-man
     
  4. Terry_w

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

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    Doesn't look like a JV to me.
     
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  5. Paul@PAS

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

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    If the JV was in a entity you ignored GST (if it applied) and also taxes.

    Eg if it was a JV company and you own 50% of shares you may not yet even have income. A company shareholder earns income based on a declared dividend and it could be part of profit, all of profit or even be after tax. Entitlement to 50% may not be assured or a given on a specific date.

    Trust ? I dont understand a trust paying tax - Or the 38% tax rate.
     
  6. Jasper

    Jasper Well-Known Member

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    It's like a pooled amount of money for a property development among many people. You put in $100k and receive that money back plus 50% once the development is complete. The $15k fee is to be a part of the project

    You're right. It should be calculated daily.

    I'm guessing it's not really a JV in a structured sense. The investment would be in the name of a trust, so the profit goes back into the trust and then distributed to the beneficiaries (which has a 38% tax rate). Again, perhaps I'm missing something.

    Thanks everyone! I appreciate the support and help.
     
  7. The Y-man

    The Y-man Moderator Staff Member

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    So more a syndicate or unlisted REIT?
    (By the way - can someone tell me the difference?)

    The Y-man
     
  8. Paul@PAS

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

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    Sounds like a trust. Likely (hopefully) a unit trust, fixed trust or similar.

    The fee may or may not be deductible. At end of each tax year you should receive a copy of financials and tax and that will determine your respective tax issues.

    Your interest may (or may not) be deductible against trust income at Item 13 in the return.
     
  9. Mike A

    Mike A Well-Known Member

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    What does the documentation say ? The documents they provided to you ?

    Debt vs equity ? Answer to that question will affect the tax treatment.
     
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  10. Paul@PAS

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

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    And it also may be a concern if the "profit" is reflected as a capital gain on the units / shares etc. There was a tax alert on that issued in recent years