Structure help for accounting

Hi everyone,

I have been reading this forum since the old Somersoft days, but have never commented or posted much to my shame.

Now I am needing help from the smart financial guru's with my structures please. I have 2 different topic/queries but they are related.

PART 1
We have been developing houses for 15 years, and up until 2-3 years ago, always kept houses in our own names. (sometimes in my wife only for security from my company). We did this to save costs on accounting, but also we were primarily holding and neg gearing. Any property sales we have had were split between us. A couple of years ago we set up a Family Trust and purchased a property in it. We subdivided this property and sold a block with P&P and have kept the existing house. Our accountant has since advised us that we wont be able to claim the CGT discount for the block of land as the intended purpose of the asset/project was never to rent out (revenue).
Questions:
Does this sound right?
How are intentions designated?
What is the best way others have managed this in the past to obtain CGT discount on parts of the development sale, other than building the house and renting it out for a period?

PART 2
I purchased another property 4 months ago in the Family Trust. I am planning on renovating the front (full gut and refit), whilst subdividing and building a property on a future battleaxe block to the rear.
I have a P/L Company that runs consultancy and administration work that has franked funds that we want to use to renovate & develop. My goal is to claim GST back on the work by having the family trust employ the company to manage the development. This way I don't have to loan/transfer money over to the trust account all the time and the accounting trail becomes clearer for this development.
Questions:
My accountant would prefer me to do the loans from company to the trust account because then the asset holding entity clearly spends costs on its asset. Is this just to make his life easier?
Do GST rules work the same for trusts (ie BAS etc) if i get it registered?
When one of the properties are sold and if it is deemed CGT or no CGT discount, then i will want the majority of the profit to be in either the trust(for discount) or company (if no discount). Is there any reason that the company can't charge a reasonable % management fee to the trust, so that funds can be transferred & taxable in the other entity?

And finally, any further expert thoughts on ways to set it up in future for developments like in part 2?

Thanks everyone !

 

part 1 yes sounds right
development won't be on capital account so no CGT discount.

part 2
I don't understand what you mean here. what does your lawyer say re company lending money.
yes
if not on capital account no discount if held in trust, company would have a lower tax rate in this instance, but a company can be a beneficary of the trust.
any agreement would need to be at arms length for tax savings to apply. Is it common market practice for a company to charge a % management fee?

Further thoughts - you are confusing accounting with tax and haven't mentioned legal advice. THere is more to consider other than tax.

 

The GST on the renovation may not be available. Residential premises are input taxed (meaning NO tax credits are given) and unless you are creating a substantially renovated place that is then new residential premises (and subject to GST on sale) you will have some issues. And the issue of what you are doing with the premises after the reno will also impact - retained ? No GST can be claimed but if sold I see this as another no CGT issue.

Using the management company to incur the build costs may be fine but on completion there would be a taxable supply (ie a sale) of the completed dwelling to the trust (who owns it right !) and GST could be added that the trust cant claim. I see a lot of people not think that part through especially where their accountant isnt property tax savvy. Often the apparent GST stripping arrangement doesnt work.

The management fee approach for such a small dev may be inconsequential. It could even increase the costs by the GST if the company charges GST. And may merely shift profit to the company when the trust can make it a beneficiary anyway and avoid the GST uplift.