Profits eaten by tax?

I'm assuming your accountant has suggested that any expenses on the second property once you are living in it ie not deductible eg rates, insurance, interest will be added to the cost base thus minimising your CGT

Developers dont pay CGT their income is classified as Trading Profit and therefore can write off all of their expenses against it.

There are very few ways of reducing your Tax liability below 30% especially if the work is undertaken within a Company structure and a decent profit level is made. Trick is limiting it to 30% only by using retained earnings.

Course if you look to buy and hold something for 366 days in say a SMSF the CGT liability is only 10% and this is what i like to do.

Congratulations – as a developer you do not pay CGT, your profits get added on to your ordinary income and you pay tax at ordinary rates – no discount no matter how long you hold the property.  You've just eliminated your CGT completely.  Your intention is to be a developer so you are taxed as a developer

10% CGT applies to capital gains in superannuation

I am reading an interesting book that talks about the timing of paying tax rather than not paying tax via different structures.
see http://www.propertyupdate.com.au/pages/How-to-Legally-Reduce-Your-Tax….without-losing-any-money.html

I'm sure the taxation office will be happy to accept your declaration that you are a developer and tax you accordingly.  But, with respect I don't think you're grasping the point several of us are making.  Possibly if we use some figures it might be clearer.

Let's say your development gives you a profit of $50K for each side – total $100K

Non developer – moves into one side sells it later, no CGT assuming PPOR conditions are met.  Moves into the other side $50K profit, less 50% discount, taxable capital gain $25K, added to your other income that year so depending on your income you will pay tax of somewhere between $8500-$12000 less any reduction for being PPOR after you sold 1st side

Developer sells one side $50K profit added on to other income – tax between $17-$25K
Sells second side – similar result.

So to save $12K you declare yourself as a developer and pay $34-$50K.  Still at least you're honest about your intentions.  The only reason you'd want to be classed as a developer is if your development loses money so you can claim the losses

Also, you will probably pay hardly any tax anyway – or maybe none at all. It is still worth minimising it as much as you can, but not a reason not to do it, or to give up.

For some good info, i suggest you go to bantacs.com.au and look at the PDF booklets on developing and tax.

If you pay tax then you must be making a profit, so it can't be all bad.

Don't worry about it too much. As they say only death and taxes are the certainties of life. 

MsTrump,

I don’t think I will need to get into any technical info of tax as other people on the forum has done a fantastic job. I understand you are frustrated by the fact that your potential profit maybe reduced by tax implications. However, there is no need to convince you that people are happy to pay taxes – it is a necessarily evil and an obligation in return for the privileges we get from living in this country. Whether or not you think the government is efficient in spending our money – or if it is fair – is irrelevant. Unless of course, you are lobbying to get the tax law changed.

The fact of the matter is, when you undertake an activity to generate income and as long as it satisfy Div 6 of ITAA, you are required to pay tax. There is no difference between you trading real estates and a single mum running a home business making hand-made jewelleries. The ATO does not interfere or help any business owner or employee in their day to day work.

There are ways to minimise tax, but no way of completely avoiding it if you choose to be a tax resident of this country (you pay GST when you buy groceries). However, take comfort in knowing that you only pay income tax when you have made money. Whether or not it’s worthwhile is up to you to assess.

The logical thing to do now, is investigate what are the tax implication if you intend to develop on a regular basis and under what structure. You may find tax advoidance is not the way to make money.

Good luck with the development
Kenny

Ms Trump,

Still only learning myself, but might it be more profit rewarding to demolish, build one,( PPOR), live in it while the other is being built (over a 12 month period), meeting criteria for exempion of CGT living in No 1 for the12 months required before selling. 

 Hence, no rental income in that first 12 months but then probably lots of tax deductions in that first year.  Have the second completed and ready to move into when the first one (PPOR) is being settled. Thus keeping all profit on the sale of the PPOR and then live in No 2 for twelve months and avoid CGT again, second time,whilst banking the profit of the 1st (PPOR)  Or couldn't it work like that.?
 
I thought it to be feesible but not sure about the expenses claim for No 2 in the first financial years assesment or taking into consideration the undoubtable extra cost to the builder to come back twice< It could be worked>

. You would have to do the sums with lost revenue but saved tax, and intrest. Maybe only paying tax on bank savings intrest on what you have saved from holding off building the second for the first year.  If you are spending it on the second you in turn declare less bank interest.  Could be way off, but just a new spin.