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profit calculations

Discussion in 'Development' started by Logan, 25th Apr, 2016.

  1. Logan

    Logan Well-Known Member

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    I am after some assistance with very basic profit calculations for a dual occ to work out if the project is feasible.

    Land cost $1m
    Construction, hold, professional costs etc $1m (this is my calculation based on research)
    Sale price $1.3m each, hold one sell one

    How is the profit worked out ? If I sold both the profit would be $600K - tax and sale fees but if I only sell one then how is it calculated ? Obviously retaining both and extracting equity is the dream but not at low yields.

    Taking this one step further if I was to sell them both straight away would the profit push my income into the top tax bracket (I am getting close already) and I would therefore be charged the full 45% ?

    thanks

    Logan
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You would apportion the costs between the 2 properties.

    Any profit would be added to your taxable income. You may not get the CGT discount if you are building to sell.
     
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  3. hematite

    hematite Well-Known Member

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    Also consider what the current value of the land is. Your IRR (for building) may not be so high if the land has also appreciated.
     
  4. Logan

    Logan Well-Known Member

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    @Terry_w

    so you mean that if your income was 130K @37% then whatever profit you made would be taxed at 37% ?

    By discount do you mean the 50% discount if you hold more than 1 year ? Does this start from when you buy the land (and assuming an existing house to be demolished) or from your oc on the new houses ?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes - but it may push you on the next tax bracket. Don't forget the medicare levy too.

    CGT usually calculated from date of land contract.
     
  6. Logan

    Logan Well-Known Member

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    So 130k income plus 400k profit puts you into 45% + 2 % Medicare + 2 % budget fix levy total 49% bracket. Profit would be 204k after tax or 302k if you sell more than 1 year after you first buy the land ?
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    perhaps no CGT discount if you are not realising a capital asset.
    Don't forget the GST too.
     
  8. Logan

    Logan Well-Known Member

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    So only get discount if you sell the lot ? Is gst on profit after tax ?
     
  9. MTR

    MTR Well-Known Member Premium Member

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    What Terry said

    Just to work out basic numbers, deduct all costs against the project including holding costs during the period of the build.

    I would get professional advice - accountant, buying in a Trust can save on taxes. I am not an expert in this area but I now I have saved money on my development projects by using the right structure and getting the right advice


    MTR
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No.
    No. GST is on the sale usually.
     
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If you build and sell two you can forget CGT to be blunt. No point sugar coating it. Its an enterprise. You need an ABN and would sell with GST. Ordinary income tax applies to profit making intentions. At marginal tax rates. Depends on ownership and also when you contract to sell. Perhaps split sales so one sold in June and another in July ?

    GST will also be a factor that will erode margins but rather than 1/11x $2.6m = 236K it could be a lower $91k if the margin scheme is available to you. (Hope you didnt buy developer land) Buying land from a estate developer is a rookie move and can cost big money.

    That adds $145K to profit. Bingo. GST on build etc can also be claimed. There are strategies around all of this and its important to approach it correctly as its a high risk audit area.

    Other holding costs incl interest, land tax, rates etc...The longer the hold the more it costs.
     
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  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yeah all those other levies bite. Also Div 293 tax applies. Maybe Medicare Levy surcharge and others too. You dont have a HELP debt ? Spouse ? Centrelink or Child care bens ?

    Thats assuming personal ownership in your name. There may be other options.
    Forget CGT...Doesnt apply.
     
  13. Logan

    Logan Well-Known Member

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    Thanks @Paul@PFI no development land yet. I prefer to have strategy worked out then hunt for land. I find it a much easier process.
     
  14. Gaby

    Gaby Member

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    Hi Paul,

    Do you mind explaining how you got 91k?