Strategies Developers/Investors use to reduce Tax

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

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  1. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    This has me totally confused - as I thought the word developer and CGT could never be uttered together. Do you mean just normal developer income tax? That would be paid quarterly.
     
  2. sanj

    sanj Well-Known Member Premium Member

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    Thats what ive said repeatedly...
     
  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    We seem to use a myriad of things, and I hope I've remembered all of them

    In no particular order
    1. Not selling - partial hoarder to maintain some intention of investor, reduce GST and retain income for Trusts via rent.
    2. Trusts - lots and lots of trusts
    3. Employees of Trustee company - to ensure everyone meets work test for Super
    4. Beneficiaries of Discretionary Trusts - there are 4 adults plus 3 minors (tiny amount we can give them). Income is balanced out to pay least amount of tax
    5. SMSF - concessional and non concessional contributions
    6. Margin scheme if selling
    7. Depreciation
    8. good book keeping (my weakest skill)
    9. excellent advice from Lawyer, SMSF specialist and Accountant

    One of our 'strongest' things is having the 4 people. We took on my parents into this and took them off the pension. We pay them the equivalent (plus a bit) of being on the pension (plus associated chemist discounts etc) and for that we get 2 extra people to distribute to. 13 more months and we'll have an 18yo to distribute too as well. 5 tax free thresholds :D
     
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  4. Rooky

    Rooky Well-Known Member

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    MTR,

    Did you mean GST instead of CGT? I have never heard of CGT being paid quarterly. Also, as developer, you do not pay CGT.
     
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  5. MTR

    MTR Well-Known Member

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    Sorry guys, too quick with my fingers, Yes GST that is what I mean. Also If buying in a Trust you also never pay more than 30% tax
     
  6. Terry_w

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

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    That will depend if you decide to use a bucket company or not.
     
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  7. Mike A

    Mike A Well-Known Member

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    Gasparin V FCT states that sub divided property remains stock on hand until settlement being the point of time at which the vendor loses all dispostive power and the sale becomes final. This is in direct contrast to the CGT provisions where ownership typically changes at the time a contract of sale was entered into.

    So generally if on revenue account (setttlement). Capital account (contract date)
     
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  8. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Very interesting. Thanks for the reference @MikeLivingTheDream
     
  9. Paul@PAS

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

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    Not true.
     
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  10. Paul@PAS

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

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    Which also means if the land had been held for sometime AND there was not an initial intent to profit from subdivision and sale there may even be a CGT event capable of being valued at market value (rather than cost) at the time land became trading stock. Unlike CGT event rules the trading stock rules contain a choice. (Often overlooked)

    That trading stock choice if it is available could save tax. There are pitfalls re tax payment timing from this issue but it could / should be explored.
     
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  11. Paul@PAS

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

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    If its a bucket company then "YOU" pay 0% tax and haven't earned a cent. At best your company may (or may not) allow you to control its share of income.
     
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  12. Mike A

    Mike A Well-Known Member

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    agreed paul Section 70-30(1)(a) means a notional sale may result in a capital gain if the market value of the property exceeds it costs base AND an election IS NOT made to use the cost method for valuing trading stock. A nasty surprise for some people if no election method.
     
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  13. Rob G

    Rob G Well-Known Member

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    Electing to use the market value may be the best outcome in the long run if entitled to the CGT discount.

    e.g. mv election

    Year 0
    purchase price $500k

    Year 1
    transfer to stock when mv=$1m

    CGT event K4,
    discount capital gain $500k = net capital gain $250k as assessable income this year

    deduction for stock purchase this year under s.8-1 = $1m

    You have bumped your cost of stock to $1m while only having assessable income of $250k.

    If the stock is sold this year then you won't even have any tax cash flow issues (no land in closing stock value). You will have $250k less assessable income.

    Don't forget a possible GST decreasing adjustment on inputs as well if not using the margin scheme.
     
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