Hi all,
I am new here. It's so great there is such a forum which provides us a platform to share knowledge, to seek helps and to exchange ideas. So glad to become one of the members here. Thank you all.
My background: I am a IT engineer, and my partner is a architect. We have a couple IPs. (let's say IP_A and IP_B)
Both IPs are currently rented out.
Our current plan is:
1. for IP_A, no change, still leave it to be rented.
2. for IP_B, it's a corner black, with some vacant land at the back, we are planning to build two townhouses on the back land.
3. In the future, if we have enough money, buy more IPs, maybe doing some development projects if the market is good.I am currently confused on:
1. the case like ours, is this business activity or private in nature? Obviously we do not want to pay the GST and would like get the 50% discount on CGT. If the GST is paid, I don't think we can make any money from the development.2. We have the option to build either one big house or two medium size townhouses on the land, talked with some real estate agents, the option of building two houses will generate more profit in term of marketing only. but just thinking with 2 new houses, will it be more difficult to convince the ATO this is not business activity? Or any other Tax issue related?
3. If we are determined as business activity, do we need to register the GST now? For all the GST credit (GST part in building cost, planning cost), do we need to claim them by the end of each financial year or at the date of sale?
4. what do you think about this idea: to register a Development Company (i will be the director of the company), my development project will be managed by this company, I will pay this company some money to manage the development project. Although I need to pay GST, the profit from the project will lower because i need to pay the management fee to the company. The company has to pay 30%, but the company may be able to claim a lot of money back because of the running cost of the company (like buying a company car?).
Peiranyu
Go and see a good property accountant ASAP. Intention is what makes a difference: if you develop with the intention to hold and rent out (for at least couple of years), it is one story… If you develop with intention to sell for a profit, another…. However, I am not an accountant-just sharing what I have learned. Do not do anything without a solid proffessional advice, and your personal plan.
If you already own the land then you won't be paying GST. But when selling new property you would have to charge the purchaser GST if you sell within 5 years. There may be ways around this.
You should seek the advice of a tax person.
A development company may need to be a registered builder too. You should look into the licencing requirements.
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 for your reply, Ballerina and Terryw,
definitely i need to talk to a good accountant. But before that, I would like to get some ideas then we can ask the right question when we meet with accountant. (BTW, any good accountant you guys can recommended?)
For the idea of company, I didn’t think about what kind of company it should be, just trying to think a way to offset some tax. If it is too complicated, it ‘s not worth doing that.
Out of our personal learning, best tax savings happen if you keep new properties as an buy and hold investment. It may work for your as well, since you are both PAYG professionals, paying regular tax. Your investment wouldn't be for you gusys to cover a living expenses, at least not in the short term
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