Would like referral for Accountant that can do structure for x4 townhouse development

Hi all,

We're developing a block of land in South East Queensland and are looking for advice on minimising capital gains tax potentially using a trust/company joint venture. Can anyone recommend an Accountant that specialises in small developments? I'm a tax agent & CPA myself but need someone that has done this a few times!

 

www.propertytaxsolutions.com.au

 

Is there any scenario where a multiple townhouse development would be on capital account rather than revenue?

 

Build and hold for rent?

 

I assumed these were being built for sale.

 

There is nothing in the post to suggest that, or holding for that matter.

 

based on the case law very unlikely. it could initially be on capital account and then convert to being a profit from an isolated transaction or trading stock. but once you start building on a site retaining its capital nature is extremely unlikely.

 

A complete original evidenced commitment to build and hold and rent it LONG term while also not incorporating the property and equity into other "development" activities for profit or short term isolated activities. And ...the obvious...you (and others) arent a tradesperson who engages in this line of work activity or intend to in the future. This isnt any different to buying land and constructing a new home. Just because its new residential real estate doesnt automatically mean its on revenue account if you project manage the site to completion. However selling even one exposes a weakness. There may be cost factors and interests by other parties that lead to this. Other aspects can be involved too eg who are the parties and how it is financed and operated ? However developmnet of land alone is exceptionally diffficuly to develop and argue its on capital account. The sale must only be a "mere realisation" eg a young couple buy land to build and break up. Once plans are put in play to build then the plans must have origanally been to hold and also the duration must be quite evident so that it cant be argued you merely "took profits".

When I say LONG term there isnt a measure but the longer, the better. Some look at GST laws and the "new residntial premises" rule but this isnt a test for CGT and is dangerous. . You want to demonstrate that you satisfy the principles in cases like Steele's which consider intentions to produce rental income as well as duration so that it cant be argued you sought either a revenue activity or a isolated profit making intention. Evidence that can be used against your CGT arguement may include finance and developmnet applications an even adviser records (which can even be used to support the intentions if recorded and retained)

But to address what MIke concludes as some may think my view differs from his. It doesnt really. I guess he is saying if you plan sale as inferred by your question then its going to otherwise be difficult to argue its capital account for a multiple t/house site you develop. If that the intention and it involves selling leaves you only two routes. Revenue account or isolated profit making.

 

https://www.abaadvice.com.au/

 

Paul above is your man - this is his bread and butter.

Also work out how finance will work - that is will the lender lend you for a 4 unit construction and will you have the necessary funds to complete the construction? Its really important to understand how valuations work when you are doing more than 2 unit development.

 

I always suggest start with finance issues first. Experienced guys like Shahin (and others) deal in this space daily and they know all the traps and issues that could even stop plans. Shahin also knows this apace well with many successful devs under his belt. Some viable borrowers apply for resi construction finance and cant get approval and it varies depending on the lender. And the process for funding is different to a standard resi loan.

While seeking the finance issues also know the property tax issues. Our developer toolkit may assist initial knowledge but is barely sufficient to guide costing the project but it will indicate the key tax issues so this can be a factor in financial projections. Lenders will expect that.

 

i thought your first development is classed as capital account rather then revenue? is that not correct? i'm currently looking at a property which could do 4-5

 

who finance 4-5 th on resi?

 

not correct.

 

so your first property site you develop is classed as revenue and not capital account? :s when did this law come in?

 

it will depend on the circumstances. Whitfields beach was a preCGT case, from memory, so its been the case for 35+ years.

 

Yes its often overlooked that CGT is "modern" tax. For decades prior to 1985 property was taxed and still is. CGT is a tax regime that applies to certain events and certain assets. Profit making is not a CGT event and a quick read of TD 92/135 indicates the simplicity of the problem. Selling property is not necessarily even a CGT asset. And then there is a tie breaker rule that looks at the case when it may be both and it ignores the CGT in preference to full income tax. Trading to produce profit isnt a CGT issue. Many confuse the two is trading v's isolated profit making. Profit making that is isolated can occur with just one event. BOTH are "ordinary income" and taxed under ordinary concerpts of income determined by decades of law. Cases in the past 30+ years tend to be limited as once people used to seek to evade tax by claiming they had a capital gain. However to do that you HAD to have a income producing use of the property. Efforts to improve it and building / renovating etc could easily trigger income tax.

TR 92/3 & 92/4 is a guide. Its part of a longer story. Whitfords beach rule : " it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income "

And dont overlook GST.