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Strategies Developers/Investors use to reduce Tax

Discussion in 'Accounting & Tax' started by MTR, 18th May, 2016.

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  1. MTR

    MTR Well-Known Member Premium Member

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    What are you doing to reduce tax?

    I have sold most of my developments/projects over the last 2 years, unfortunately my third partner is ATO. Nice making money, but not so nice when ATO is taking a bite at both ends.

    One tip is buying in a Trust and distributing, have children at Uni, so this can save big $.
    Here is a link may find interesting?
    The benefits of family trusts and how they can minimise tax and help transfer wealth between the generations

    Use Margin Scheme

    Currently looking at other options, anyone want to share their tips.
    I know terryw has posted quite a few tips, so apologies if some topics have already been mentioned.

    MTR:)
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The best way to save tax is to divert income from higher tax payers to lower tax payers in the family group - including companies. This can be done very well with discretionary trusts but there are also other ways.
     
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  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    1, Structure
    2. Knowing how to correctly account for all dev costs
    3. Claiming correct amounts of GST when allowed
    4. Using margin scheme when allowed
    5. Good advisers - Finance, development and tax
    6. Not buying land from a land developer to build on. That mistake can smash profit by 20%
    7. Building on time. Delays cost $
    8. Use a local town planner to max potential for site

    Too often new devs fail to allow for all the costs and the projected profit target is just unrealistic.
     
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  4. MTR

    MTR Well-Known Member Premium Member

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    A few more tips that are working for us, and of course everyone needs to discuss with their accountant as to whether it will work for them.

    I have 4 townhouses all sold, however I am going vary the settlement contracts/dates, 2 sold townhouses in this financial year and 2 in the next financial.

    Paying interest in advanced to reduce tax. (I am not a fan of this one, but have used it)

    Distribute from the trust $35,000 pa each into your SMSF

    MTR
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    47% tax here potentially - non arms length income.
     
  6. MRO

    MRO Well-Known Member

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    Timing, as you mention above. Arrange settlement dates accross different tax years.

    Aside from what is mentioned above there are no magic tricks that can eliminate your tax.
     
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  7. MTR

    MTR Well-Known Member Premium Member

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  8. MTR

    MTR Well-Known Member Premium Member

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    There may be others, but this would also have to do with setting up companies that act as project managers, I am new to this one and not sure how it would work effectively. This is a work in progress for me.
     
  9. MRO

    MRO Well-Known Member

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    I am looking into this. I own a larger property i hope to subdivide into 8 lots. My wife does not have any other income and will be project managing it all for me. I know the ATO dont like payments between spouses but this is a legitimate situation where my qualified wife is managing the development which i own solely in my name. I work full time so cannot manage it myself.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  11. Scott No Mates

    Scott No Mates Well-Known Member

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    Hefty donations to political parties, charities & school building funds all attract 100% deductibility

    Attendance at relevant conferences OS
     
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  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A distribution to a SMSF form a trust is NOT wise. It is non-arms length income and subject of a taxpayer alert. However you could make a concessional or non-concessional contribution personally. A concessional contribution could be tax effective. The trust does not claim a deduction for a contribution but may finance the payment.
     
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  13. sanj

    sanj Well-Known Member

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    have you received advice on this? having them settle in 2 different financial years in not going to help, your tax liability occurs in the year the contract of sale was done, not settlement. in this case all 4 will be part of your FY1516 figures.

    From ATO - Timing of a real estate CGT event | Australian Taxation Office

    granted the above is for a CGT event and yours will not be subject to CGT but it highlights how the timing of the event is determined, in this case contract date and not settlement date.

    effectively delaying your settlement will only result in additional holding costs and delaying the access to funds, there will be no tax benefit.

    cant do 35k into super anymore either i believe.
     
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  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    So you part own it and pay her as she participates in the dev...It may be arms length but its very high risk. Its also possible its a property partnership and its 50/50 (since you have no partnership agreement in writing) and the legal title could be ignored. You wouldn't be first to get attacked on that one. Esp if you use joint borrowings.
     
  16. sanj

    sanj Well-Known Member

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    not to ignore the inherent risk and the lack of flexibility with tax treatment down the road by undertaking a significant development in your personal name
     
  17. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Before 30 June 2017 and subject to taxpayers age you might. However depends too on contributions between 2007 and today if Libs win election.
     
  18. sanj

    sanj Well-Known Member

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    so the recent super changes were an election pledge and not immediate changes? i was under the impression it was the latter, in particular when it came to max NCC allowed and it being retrospective.
     
  19. MRO

    MRO Well-Known Member

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    The title and loan are all in my name. Wife will be managing the subdivision. This is a genuine situation not contrived for tax purpose. It doesnt seem right that i could not pay her a commercial rate for managing the subdivision for me. Unfortunately i am sure the ATO will see it as a way of distributing profit rather than a legitimate arrangement.
     
  20. MTR

    MTR Well-Known Member Premium Member

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    Received professional advice, Not so, if you are a developer operating a business, CGT on settlement.