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ownership structure for individual for development project

Discussion in 'Accounting & Tax' started by Rooky, 10th Oct, 2015.

  1. Rooky

    Rooky Well-Known Member

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    Hi All,

    I am wondering what is optimum structure for doing development project when development is owned by individual person and not via trust or company.

    Reason i am asking this question is because i have read on this forum before that use of project management company is tax effective. I am not able to understand that part. Can someone give me example based on below numbers? I have given below example without use of project management company.


    Site purchase : 500K
    Site settlement date : 01/07/2014
    Ownership structure : individual ownership, assume that individual is earning 100K per annum from regular job
    construction :450K
    interest from settlement till sale of all units in development : 50K
    (for simplicity assume that only 2 units and they were sold on same day)
    Total resale value : 1200K
    Sale date : 30/06/2015
    Gross profit : 1200K - (500K + 450K + 50K) = 200K

    For financial year 2014-2015, individual will claim following in his/her tax return.

    100K income from PAYG job
    200K income from development
    ======
    Total taxable income 300K
     
  2. SK Investments

    SK Investments Well-Known Member

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    Don't forget GST
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The idea is to divert some income to another entity.
    So a project manager could be a trust and it could charge you the owner a fee to manage the project. Care must be taken that the fees are not too high or the ATO may disallow deductions. You will need to carefully discuss the fee with your tax agent to make sure it is a commercial amount. perhaps 10% of the construction costs.

    Also consider related party loans.
     
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  4. Rooky

    Rooky Well-Known Member

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  5. Rooky

    Rooky Well-Known Member

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    Thanks Terry.
     
  6. Be Developer

    Be Developer Property Developer Business Member

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    @Rooky

    Don't forget GST.

    Also, may /may not be eligible for CGT.
     
  7. Greyghost

    Greyghost Well-Known Member

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    Need to be careful if setting up a management structure if you own the property and it's your development. Ato could deem the "management fees" as profit shifting and or a scheme/tax avoidance. I am being extreme here though..
     
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  8. Greyghost

    Greyghost Well-Known Member

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    If the property is currently your PPR and you have a spouse you could transfer say half to her with no stamp duty or tax implications, then develop and sell. So to take advantage of the tax brackets via your spouse.
    This assumes:
    1. You have a spouse haha and
    2. He income is substantially less than yours.

    You should speak to your accountant about strategies to reduce your taxable income - salary sacrifice etc

    But this thread does highlight the importance of setting up correct structures and getting good advice before purchasing.

    I know what I have said above my only make minor differences to the tax outcome on a 200k profit, but hey..

    Only other thing I can think of is as they will most likely be on "income" account for accounting purposes try to arrange for settlements of the "2" units to occur in different financial years - thus splitting the $200k into $100k one year and $100k the one after - hopefully keep you under the 180k tax bracket..



    Best of luck
     
  9. D.T.

    D.T. Adelaide Property Manager Business Member

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    If neither the development nor the management co are your own name, ie separate entities with arms lengths agreements at market rates it should be fine right?
     
  10. Greyghost

    Greyghost Well-Known Member

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    Yes it's fine.
    I was more taking about setting up a management structure for a 1 off Dev when prop owned in your own name..
     
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