Hi I am a small developer and my regular builder wants to do a JV apparently. I am unsure about how such an arrangement might look. Would people think a reasonable JV arrangement to be that I do the 'project management' including liaising with all consultants etc and source the site and he builds it and neither of us charge for our component (i.e. I do not charge for my time/expertise and he does not charge a profit component on the build) and we each put in equal funds and split the profit 50/50? We would be looking at doing say 4 townhouses plus the refurb of two houses. Have people done similar JVs and what methods were utilised? Any comments appreciated. Cheers Ben
A million different ways to skin a cat! One option Set up a seperate pty ltd with shares owned by each partner (call it 50/50). Each put in equity to the same proportion. Contract to him as a builder - on either a commercial rate - or a cost + contract. Split the profits proportionately (50/50). Prior to starting agree what activities will be carried out by each member, how are decisions made/communicated etc etc etc Blacky
There is no normal in these situations. Depends on negotions between the parties. Consider who will wear the risk of the loan as well. It might be best if the builder is not involved in the ownership entity - for lending reasons.
Legal Tax and Financial advice would be a minimum. Sometimes NOT being involved with the buider can seperate tax issues
Have working drawings competed and tender to other builders. Even if your partner is quoting a cost only build you could still find a better deal. The aim is after all to make a profit.
If you get involved with the builder you (and builder) may need a fresh ABN and its ordinary income. You could also be liable for partnership losses. No CGT...Double the tax for being an enterprise ...MT 2006/1 is the ATO ruling about an enterprise. A bad contract with builder could also be a taxable supply of land to the builder with GST triggers all done badly. Not being involved with buikder may not save GST but can or halves tax rate or even eliminate it !!
Thanks for the replies, much appreciated. I guess my primary concern was the split of profits, as a developer I get 20% of TDC and a builder gets, say, 10% to 15% of the build cost. If I split the profit 50/50 then my share goes down considerably while his goes up considerably. I am struggling to see the upside for me.
