Planning approval tax implications and structure

Discussion in 'Accounting & Tax' started by is_don_is_good, 13th Jul, 2017.

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  1. is_don_is_good

    is_don_is_good Well-Known Member

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    Hi everyone,

    We bought our 2nd IP a few weeks ago, settle in a few months. It's tenanted until March 2018 so we don't have to spend anything on a reno now. A reno would just be floors and paint anyway.

    It's a corner block on 620m2, bit of slant, the advice we've been given is that it's fine for two townhouses.

    Since we don't have to to spend on a renovation we are looking at spending the $10k-12k on getting planning approval for 2 townhouses so we can get upside from that. We have no intention to build them in the near future.

    We'll never move into the existing house or one of the townhouses that may get developed in the future.

    1. Structure: Give it's strictly investment and there is future development potential, is it better to buy the house in a trust with my partner and i? (Our only other property is an IP and is both our names).

    2. If we purchase in a trust, get the planning approval and decide to sell, what are the tax implications after the first year?

    3. Are the tax implications different if we purchase in a trust, don't get plans and then sell after the first year?

    Just trying to get my head around it. Thanks guys.
     
  2. Terry_w

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

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    1. A bit late not but better late than never. This is more complex than you think.

    2. the ownership structure won't really change the tax consequences. it could be on revenue account whatever structure was owning it.

    3. CGT possibly.
     
  3. Hamish Blair

    Hamish Blair Well-Known Member

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    At very least if you purchased it in a trust, then then profit could be distributed to the person with the lower income to reduce marginal tax. Make sure you have good legal advice in structuring your trust (and as @Terry_w says it may be too late if you have settled the purchase otherwise you will incur stamp duty all over again), and understand what “presently entitled” means.
     
  4. is_don_is_good

    is_don_is_good Well-Known Member

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    We haven't settled yet and i left it open to nominate so I've still got a bit of time to sort it out.

    I was wondering if there'd be a pretty clean cut answer though.

    Cheers guys
     
  5. Terry_w

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

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    This is not really the case. You might have some flexibility but there are various consequences. Have you sought legal advice.?
     
  6. is_don_is_good

    is_don_is_good Well-Known Member

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    We haven't yet. What advice should we be getting? Do you have a link or anything?
     
  7. Terry_w

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

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  8. Paul@PAS

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

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    Tip 1 should be Get tax and legal advice before buying any property

    Tip 2 should be read Tip 1 again if you dont agree with Tip 1
     
  9. Terry_w

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

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    and ideally before even looking. Nothing worse than needing to sign 'immediately' and needing urgent legal advice on who the buyer should be.
     
  10. Paul@PAS

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

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    Uh yes. I wish I had $1 for the clients who say - I needed to sign then & there and probably should have called you. Yes you should have.

    - Can I setup that trust we talked about ? (Too late ?)
    - Can we put title in my wife's name now ? (1 month after settlement. No)
    - Will this new property affect my land tax problem (Yes)

    The best time for advice is before you need it. It tends to be cheaper than the mistakes.
     
  11. Terry_w

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

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    I recall one saturday morning i got a call from a friend who was with another friend bidding at auction and they wanted to know, over the phone, if the property purchase price included GST or not. 10min before the start. I just said sorry can't help.