Case Study

Property Development

Restructuring a budding property development business for financial success!

Background

A first-time property developer, this client was undertaking a three-unit subdivision at a total land and build cost of $1,200,000. With a goal of selling the units upon completion, the client was anticipating his profit to be $80,000 per unit or $240,000 in total.

Potential issues this client was facing stemmed from how the business was structured. He had made an offer on the property as a ‘company’ and was the sole shareholder and director. But by structuring his business in this way he was at risk of the following:

  • Losing out on the 50% capital gains discount – a benefit not available to companies.
  • The development being treated as a profit-making undertaking, meaning he would be out of pocket for GST.
  • Income taxed at a very high marginal rate of 49% once profits were distributed.

By continuing with this venture as a company, the client’s after-sales ROI was at risk of being significantly reduced. ​​​


Solution

Realising he needed the support of a professional accounting partner with significant experience in property development and ownership structures, this client came to Nav Accountants for guidance. Our team quickly got to work conducting an in-depth review of the client’s position including their income, family situation, intention for development, the extent of personal involvement in executing the project, his previous property experience and a range of other relevant factors.


Outcome

Following this review, the following actions were successfully executed by Nav Accountants:

  • A trust was set up with a company trustee and the offer was changed in the name of the new entity – saving our client $35,000 in income tax. This also gave him the flexibility to distribute gains to other family members on lower tax bracket.
  • Going for a hold strategy instead of selling the units on completion. This meant the client was out of GST net and able to benefit from the 50% discount on capital gains. This saved the client another $60,000 in net GST and tax - an overall saving of $95,000.

Before you take the leap into property development, contact Nav Accountants today and book your free consultation.

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