Hi Everyone
I am currently thinking about building & selling duplexes to create some extra cash flow to help reduce my owner occupied mortgage. I am hearing several different stories (from different sources) regarding CGT implications with doing this. I understand if I build & then sell within 12 months I will have to pay 100% CGT, but have been told this can be reduced significantly if I form a company & become a trader? Or would it be advisable to sell one duplex, put tenants in the other & keep for 12 months? Any advice on this would be much appreciated or referral to someone who may be able to help. Any other suggestions or options to help achieve my goal would also be listened to & appreciated.
Thanks
Regards
AnthonyIf you are buying and selling properties then you will just pay income tax, not capital gains tax. The properties would be classed as trading stock. Like buying and selling apples.
If you buy a proeprty with the intention to rent it and later sell it for a gain, then you will have to pay CGT and will get the 50% discount if held more than 1 year.
Companies don't get the 50% discount, so it would just pay a flat 30% tax. Individuals pay up to 46% tax, so with the 50% discount this could be reduced to about 23% which would make it better than a company,
But the best maybe to use a trust and then you could distrubute to lower income benficiaries and pay a max of 23% tax. If you are classed as a trader, you could still save tax buy distributing to family members, and then to a company when the family members incomes are high enough to make them pay more than 30% tax – ie you could cap your tax at 30%.
Having multiple trusts could also help you claim that you are buying long term with the intention to hold. You may have to sell one or two along the way due to unforseen circumstances.
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
I can highly recommend DKM Accountants Upper Mt Gravatt BRISBANE – http://www.dkm.com.au
They are very specialised in property matters, tax, structures. Get the planning, structure and intention correct before you purchase and also get advice on the gst part of the construction.
Also from my understanding the 50% cgt exemption is a 2 part process- they look at land, and also look at the construction completion date, and also look at the land value after the 12 months.
Speak to Stephen Lennon or Karen- their advice is well worth every cent and they are not cheap but they get it right from Day 1 for you, and this is worth its weight in gold.
Thanks
The decision as to whether the income is treated as Trading Profit is not yours but the ATO and convincing them you are developer will involve doing more than just the 1 development.
Also there are a few pluses and minus of such a strategy so careful consideration is required.
If you need the name of an expert firm on Property Investing and Trust structures let me know and I can give you Steve Hodgkinson details. Steve is a partner with the Gold Business Group in Southport and a good supporter of the forum.
I have referred dozens of clients to him from the forum and everyone speaks so highly of his advice.
Richard Taylor | Australia's leading private lender
Thanks everyone for your comments & advice.
Regards
Anthony
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