Your property development accountants 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 property tax accountant with significant experience in property development and ownership structures, this client came to Nav Accountants for guidance. Our team of property development accountants 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 property development accountants first, like the Nav Accountants today and book your consultation.
We are property development accountants chosen as Finalists in the 2023 Australian Accounting Awards in the Property Specialist Accountant of the Year and Boutique Firm of the Year (Less Than 20 Employees) categories, so you’re sure you are in good hands.
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