My girlfriend and I would like to make a bit of money doing the reno and subdivide gig. Im currently doing one but my Girlfriend would also like to join in on the game. We are looking at going halves in setup costs after the first couple of
deals,butmy end is wrapped up in other investments she will finance her first one totally. Once she sells the properties though we will go halves in the profit.
We at the moment have 2 main problems, they being, us both breaking up and tax.Regarding breaking up, I looked at possibly having a contract where I was paid so much for each stage of the development if the development did not come to completion.
Or having a contract that we were legally both the owner, however as she is going 95% LVR and if we havnt finished the development, I will be getting more then my share…also it may conflict with Bank and Titles too much to be a Legal document.Regarding Tax, she could do the pay me for each stage of the development(as mentioned above) with a bonus at the end adding up to a total of half of the profit. This then would be classified as costs to her and no tax her end on that money she gives me. I would of course pay tax but no dramas here. She would also pay me a 'living fee/wage' so Ican survive whilst Iconcentrate on doing her development, this 'wage' would also come out of my half of the profit.
Question is I havnt done this before so im not sure if this sounds OK. Im guessing me being a 'subcontractor' to her will surpass the legal and tax problems or is their a better way?
Thoughts?Firstly, do you have a builders' license? You can't contract, even to your girlfriend, without one. Onwer builders licence is a possibility but you are restricted as to how many jobs you can do over a certain timeframe ie one every 5 or 6 years and you must do an owner builders course (nothing stopping you both doing the course and taking turns as the builder).
Can you clarify your intentions? I am reading it as: G/F Buys the property, you undertake work (and get paid), she makes profit & then splits it with you? Essentially, you do not take any equity in the project, just invoice her for the works undertaken and your final invoice (for half of the profit) hits your g/f upon exchange of the sale contract. You are acting as a builder then you need a licence (and an abn).
You can't be a subcontractor unless someone is the contractor – is she going to take on this role?
She will be up for capital gains tax when she sells (as well as any gst on construction costs during the works).
A possible option would be a JV agreement where she is the finance partner and you are the time/project management partner where the agreement splits the proifts (or losses) 50/50. In this scenario, she secures the property and pays all outgoings whilst you put in the time. If you wanted to, you could always put a caveat over the property to secure your interest. You would need a solicitor to draft up the agreement. I guess it is up to you both to decide how simple or complex you wish to make it.
As with any reno, I would check with the level of work that you are able to do independant of the appropriate tradespeople.All the best.
Cheers
TammyScott, regarding intentions, your fairly good with your idea of what I mean. Except I wouldnt invoice her for works, she would pay direct, also the half of the profit at the end is minus my pay during project.
Scott, I fail to see why I must be a builder if I am only renovating and not 'building' an enclosed structure. Sure I will need/have an ABN, however, that is no different to a contractor (subcontractor made it confusing I see…novice talk by me) who you get in to maintain the property. Of course major jobs such as rewiring etc will have to be done through a proffesional. Im talking about doing the main bulk of the work which does not need a proffesional builder/trade certified party.
Scott regarding capital gains that will only be for her half yes?
Tammy. JV Agreements! Interesting, never heard of them before. I thought there maybe something like that which may fit the bill. It looks perhaps like it may be more of a legally binding contract on us both, rather then a renovating/development contract signed by us both.
Regarding the reno and tradies…all good.Anyone else with thought?
The idea behind the JV in your instance (besides others) is a way for the transaction to be transparent to the ATO. That is, prior to any taxing and after costs are deducted, the profit is distributed 50/50 and then you each pay tax according to you particular situation. Obviously you would be best to seek appropriate professional advice, as I am only offering an opinion based on something I have done.
Cheers
TammyThanks for that Tammy. I appreciate it.
Earthling, firstly, in order to contract to do "building works" as defined (ie works over a value of $12k) you require a license, regardless of whether she is paying the contractors directly (ie you are providing a project managment service for works valued over the threshold).
Your partner will pay cgt on the profit (unless you are also a part owner and you would also be paying cgt). You will pay tax on the fees charged for your services (or on the amount that your g/f pays you from the profits).
What will be the situation if the renovation results in a loss?
You must be logged in to reply to this topic. If you don't have an account, you can register here.
