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Gold Coast Property Network. Wednesday 29 May 2013. Accounting and Tax Issues for Property Developers. Follow me on Twitter @ PaulCopelandWB. Topics Covered Today. Most common legal structures for property development Advantages and disadvantages of the most popular structures

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Gold coast property network

Gold Coast Property Network

  • Wednesday 29 May 2013

  • Accounting and Tax Issues for Property Developers

Follow me on Twitter

@PaulCopelandWB


Topics covered today

Topics Covered Today

  • Most common legal structures for property development

  • Advantages and disadvantages of the most popular structures

  • GST and the margin scheme


Disclaimer

Disclaimer

  • The information contained in the presentation today is general in nature and should not be relied upon by anyone without first consulting a professional on the application of any of the information to their circumstances and their own issues.


Five basic structures

Five Basic Structures

  • Individual or Sole Trader

  • Partnership

  • Company

  • Trust

  • Superannuation Fund

    • Company and Trust are most common


Private proprietary company

Private Proprietary Company

  • Advantages of Company Structure:

  • Company is a separate legal entity so can limit personal liability

  • New investors can easily be admitted as a shareholder

  • Flat rate of 30% tax

  • Shareholders have a definable entitlement

  • Profits can be retained in the 30% tax environment


Private proprietary company1

Private Proprietary Company

  • Disadvantages of a company structure:

  • 50% exemption for capital gains tax not allowed

  • Difficult for tax-free amounts to pass to shareholders

  • Directors can still be held personally liable

  • Can not distribute losses to shareholders


Unit and discretionary trusts

Unit and Discretionary Trusts

  • Unit Trust:used by non-related investors looking to ensure their investment entitlements are clearly identifiable

  • Discretionary Trust:generally used by family groups and have no fixed entitlement to income or capital. Distributions are at the discretion of the trustee


Unit trust

Unit Trust

  • Advantages of a Unit Trust:

  • Provides asset protection when used with a corporate trustee – Not for the individual investor

  • Unit holders have a fixed interest and entitlement

  • The 50% CGT discount is available

  • Profits can be passed out to investors without tax having to have been paid which can be seen by some investors as a benefit


Unit trust1

Unit Trust

  • Disadvantages of a Fixed Trust:

  • Can not distribute losses to individual investors

  • Income must be distributed at year end or is taxed at highest marginal tax rate


Discretionary trust

Discretionary Trust

  • Advantages of a Discretionary Trust:

  • Can be used at the investor entity or the developer

  • Liability can be limited using a corporate trustee

  • Flexible capital and income distributions

  • Access to the 50% CGT discount

  • No restrictions on tax free distributions


Discretionary trust1

Discretionary Trust

  • Disadvantages of a Discretionary Trust:

  • Can not distribute losses to beneficiaries

  • Beneficiaries do not have a transferrable interest


S elf m anaged superannuation fund smsf

Self Managed Superannuation Fund (SMSF)

  • An SMSF can not generally undertake a development directly

  • Main use is as an investor to receive profits and an additional source of capital

  • An SMSF is a variation of a trust structure so requires a trustee and deed


Self managed superannuation fund

Self Managed Superannuation Fund

  • Disadvantages of a Superannuation Fund:

  • Difficult to access profits

  • Highly regulated and restricted operations

  • Can impact on your ability to borrow


Trust structure working example

Trust Structure – Working Example

  • Syndicate Structures

  • Then one from the Audience


Revenue capital receipts

Revenue & Capital Receipts

  • Leading on from structuring is the taxation of income from developments when they are completed.

  • Three main categories of revenue:

    • Ordinary Income

    • Capital Gains

    • Profit from a one off venture with a profit making intention


Investment land to be developed

Investment Land to be Developed

  • Marie acquired her house in 2002 and it sat on 1.5 hectares.

  • She obtained a DA and then developed the property into 15 lots

  • She sold off the lots. She had never developed before and was retiring after that.

  • CGT issue

  • As capital – NO GST to consider either.


Consider brendale industrial development

Consider Brendale Industrial Development

  • Development undertaken at Brendale.

  • Ten new sheds constructed but only eight sold.

  • Remaining two sheds are rented out and sold after three years

  • As last two sheds no longer trading stock – they are subject to capital gains tax on sale

  • GST will also need to be considered


Gst and property development

GST and Property Development

  • GST applies at all stages of the development

  • Check registrations – www.abr.gov.au


Gst and property development1

GST and Property Development

  • Many issues to consider but selecting two to discuss and build some knowledge around are:

  • When do I register for GST?

    • Carrying on an enterprise

    • Turnover exceeds $75,000


Margin scheme

Margin Scheme

  • Concession on GST payable on the sale of certain new properties

  • GST payable equals to one-eleventh of margin

  • Calculation of acquisition price

  • No input tax credit for a purchaser

  • Both parties to agree to the application


Bas record keeping

BAS & Record Keeping

  • Reviewing your financial position on an ongoing basis is just common sense

  • Cloud Accounting Software – XERO done as a monthly subscription

  • You start with the numbers by reviewing your feaso – don’t stop after that.

  • Sloppy record keeping = Bad outcomes.


Bas record keeping1

BAS & Record keeping

  • What can happen from not knowing your financial position?

  • Cost over runs not identified quickly

  • Profit reduces increased project risk

  • Run out of money prior to completion

  • Make sure you have access to accurate and timely information


Conclusion

Conclusion

  • Having assisted property developer clients for 50 years, William Buck have a unique knowledge and expertise concerning this industry.

  • We are happy to assist with any accounting and taxation queries or advice that you may require.

Follow me on Twitter

@PaulCopelandWB


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