Making Money on House & Land Packages

Thanks for your tip. Have you done any H&L builds in Sydney? Do you have any tip for similar areas in Melb?

 

Yeah a few in NW and couple comin up in SW.. always go 20% lower than sold properties..

I know Melbourne well but have been hesitant with h&l unless I build and sell there.. family has bought in Werribee thought which I thought was great.. i've gone a h&l in Brisbane too but once again much under comparables..i wouldnt do brissy unless u know suburbs and buyers very well

 

Melbourne deals I think are too risky right now. I got excited seeing one for sale that was built 12 mths ago. They paid 140k for the land and I would imagine 170kish for the house. On the market for 475k in Pakenham.
I thought this sounds good. Do a short term flip. Looked for land can't find any for under 200k. 6 months ago there was a heap of crappy land for 140-160k
All gone now. My plan would have been put the biggest 4x2x2 on the block and pimp it a bit to get a fhb to fall in love with it and buy it. Too scary for me now. If I'm spending 400k for H/L I may only break even a year or two later after CGT/selling. When I thought I could get in for 300k ish it was attractive

I'm blown away at the land prices all over Melbourne, my concern is that buying innnow might not leave much room for land growth in the short term I might only see 30k growth

Long term I see no issue though, but not the kinda deal I'm after right now

 

No CGT. Your sale is also subject to GST and buying developer land will erode 5% of the sale from profit as the margin scheme cant be used.. And if your sale isnt structured correctly it could take 9%+ of the sales proceeds leaving a loss. If plans are to profit its 100% tax even if after 12 months and living in it isnt the answer as its not a CGT asset so no main residence exemption. After GST, legals on the buy and the sell, stamp duty and sales commission and costs then deduct 40% for tax after hold costs what are we talking ??

 

Wouldn't it be dependent on the intention of the dev from the start. Say you bought a H&L, rented it out 1.5 years then decided to sell - that would be more a CGT. If the intention was from the start to sell and you're in the business of building and selling IPs (doing 1-2 every year for the last 3 yeas), and it was put for sale directly after it was build (then yes)

Otherwise anyone can be classified as a developer for GST, divorced couples who sell their IPs would be up for this.

 

Ouch, that's a serious chunk off the bottom line! Stamp wouldn't be that much though as it's only on the raw land correct? But the rest still adds up to a bundle. Do you have any suggestions on how to minimize these costs especially the 40% tax? Do it via a trust structure and distribute income perhaps?

 

Sorry what do you mean by this?

 

why would it be subject to GST? if you're building, renting it out for a year and then deciding to sell (circumstances change) and you're not a like 1-2 a year building and selling it should be CGT.

 

@sash - maybe you answer this although i had advice from some very high end tax consultants and the ATO, with all your H&L packages you have bought, build, rented out - have you sold any and have those been sold paid GST on the sale or just CGT?

 

I have held all of them...but I think if you are continually building to sell..it might incur GST as it can be viewed as conducting a business. A fine line....I guess..but have not tested this.

 

Just thinking...my understanding is income on sales less than 75k does incur GST....so the question is would passing through a couple of companies fall foul of the part 4a avoidance side of things....

 

If you have a PAYG job - and you have say 10 properties earning rental income (with no intention to do it as a business) then it is basically rental income added to your assessable income. If you do sell one or two - it will not classified as GST (otherwise everyone who sells an IP would be paying GST - it depends on the nature of your primary occupation, historical sales(if you did 2-3 properties) and whether it was in a trust or your name etc. There is no such thing as you build an IP, and then you rented it out (circumstances change ) you sell after 1.5-2 years and then you are liable for GST unless you are builder or someone trading in property stock. Divorced couples, people whose business fails requiring sale of IP to fund the work, private school fees of kids, ill health, etc all kind of reasons - if everything was GST then why not just abolish the need for CGT.

 

that is if you are trading stock as in buying and selling and the magnitude of how you go about buying and selling. seriously even if you had the intention to sell (unless you advertised it for sale after the H&L directly completed) - the tax office still needs to establish the intention to do so (with nothing on the table or no records ) how do they do that? it is not plausible to say someone is running a business if their circumstances change. I had a few frens divorced after holding a few ips for 2+ years before selling due to this. so is that subject to GST? of course not. as they were both medical doctors who had no time to run property related trading buying and selling.

I have tax rulings in the past maybe going back 6-7 years verifying these facts.

 

I agree, it's pretty risky to do H&L when the market is nearing peak as it is. I've probably missed the boat in Syd/Melb for this wave but I suppose there are still opportunities a bit further out from the CBD and other cities like Brissy and Perth?

 

only way to find out is to get a private ruling from the ATO

 

is not the case (mine was a bit more complex)

 

in Melbourne, I think the wave is ongoing (it moves suburb to suburb) some suburbs were stagnant for 2-3 years then moved. some moved like 2+ years ago but when it moves - it does move and not just the standard 5-10%.

 

Its actually far easier for the ATO. They dont have to prove a thing. They can take the view and disallow a CGT event and impose ordinary income in three years time and tell you its avoidance and hit you with penalties.

Personal tax advice would be the normal process so you understand things like land tax, duties, CGT, tax, entity taxation and GST. Avoiding mistakes means that taxes are known and planned and form part of costs.

Rulings wont help if its flawed information either. eg the comment...Of course not ?? GST applies to a first sale of property within 5 years (or longer!!) and the taxpayer intentions may be relevant. For a Doctor to build a new property it doesnt have to be a business. And probably inst...It can a single isolated profit making intention too. No need for repetition. Especially if Doctors do this as JV and disclose their intention when applying for finance....It happens. And ATO can find it when they tear into the taxpayers.

 

Hmm...I'm aware that the Melb market is similar to the Syd market in a sense that it's quite fragmented and made up of many suburbs that do not move in conjunction with one another.

However, we're talking about H&L in land release areas on the fringes of the city which I assume would all be equally affected should a correction take place or no?

 

We are talking about average individuals not trust or other entities created for dev for profit for eg A doctor or whatever profession may build a property and rent it and sell it later due to personal circumstances it is cgt and not gst. I am not sure how u establish the intention? Is it through some tape recording in the brokers or unless u have some concrete documentation to prove otherwise like sale advertisement that shows the property was advertised prior to even being rent out

Having a ruling is not flawed it is legally binding as long as the information and conditions provided are correctly conveyed and acted upon am legally trained myself and also went through tax consultant who obtained this ruling prior to purchase

These questions on occupation reoccurrence intention. etc is my personal exp as I have been through an audit before and due to the ruling and other comprehensive docs provide it was cleared with no issue

This is not like some Taliban court where ato can dictate they needs to evidence but then again even I have won a case brought against me in Islamic court and ruled in my favour