Hi,
Start with the standard line of we are new to this and would appreciate some advice.
We have been buying and renovating property for the last 23 years but it has always been our principal place of residence. We have done 10 renovations in this time with a profit margin of 9% worst one which was a property we did as owner builder and sold whilst we were over seas and unable to present it. Our best profit was 195% due to the mining boom the rest sit nicely in the 15% to 35%.
We would now like to do this full time and need some advice from people already doing it, to the tax implications. I will continue to work on a salary of $85,000 and my husband will do the majority of the renovation work himself in general the only thing we have ever paid for has been the electrical and some times a little bit of plumbing. I have spoken to accountants etc but get the usualy put your money into super or negative geared properties – which is an area we have no interest in we want to be able to make a living from this and obvisouly pay the minimum amount of tax.Johlin
Johlin, if you intend to carry the refurbishment of houses on as a business, you or your +1 will need to become a licensed builder. As for the tax situation, provided that your are registered for GST, you should be able to recoup your GST inputs (ie suppliers/subbies) however you cannot generally pass these on to the purchaser in a resi property as the price is gst inclusive.
Even if you are living in the places as your main residences the ATO can say you are carrying on a business and still hit you with tax on the profit. Depends on if they were to know about it somehow. So maybe do one in your name and then one in your spouses name and keep swapping – it may delay detection. And just factor this tax in just in case.
If you are going to have to pay tax, then probably best to look at using a discretionary trust to own the properties.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry, just looking into discretionary trusts now and looking at purchasing "Trust Magic" to get a better more understanding of how they work.
If you use a DT you would want a Corporate trustee.
As Terry has pointed out even though you may try and claim them as PPOR the ATO will look very differently and almost certainly classify the income as trading profit and you will be taxed accordingly.
Also as SNM mentioned you certainly would need to be a licensed builder or engage such.
Richard Taylor | Australia's leading private lender
In today's news Dept of Fair Trading in NSW has cracked down on unlicensed contractors/tradies in the Campbelltown area. SMH
Owner-builders are limited to one project every 6 years. You will be required to get home owners warranty insurance prior to selling etc.
Are the risks of a buyer discovering unlicensed work worthwhile?
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