One of the common issues encountered with undertaking a dev site is the inevitable issue that the profit is taxed as ordinary income rather than under CGT provisions.
I have encountered a way to overcome this problem and its definitely not available for just anyone. But its worthy sharing to demonstrate how some planning can overcome some apparent obstacles. Two key issues -
1. Someone as an owner of pre-CGT land
2. The land owner is interested in a development but doesn't want to do it themselves (or lacks financial capacity to do so)
Pre- CGT land. Common to older people. Land acquired prior to 20 Sept 1985 isn't subject to capital gains tax. So all concerns about the main residence exemption etc can be disregarded. Does this mean all the profit will be tax free ?? Hell no. CGT event K4 applies to land when it become "trading stock". The owner uses market value for the trading stock acquired. This effectively triggers an exempt capital gain. (No tax) This also ensures the highest possible value for trading stock so that the profit subject to ordinary income tax provisions later is minimised.
Now the owner issue is part of the problem. This may occur with an older relative even a parent. They may have a large block capable of subdivision. We commonly encounter older retirees seeking to sell and move to smaller homes or even to aged care. The are usually uninterested in a development but are always interested in selling for a higher price.
Question is do you want to do a JV with them ? Subdiv, DA, clearing, construct and sell all comes at a cost. Perhaps you can be the financing party and they are the land contributor ?? In return splitting the after tax profits might be a suitable alternative.
The right structure and agreement needs to be used so that each party received a fixed agreed share of profits...A unit trust or company can be ideal.
I have encountered a way to overcome this problem and its definitely not available for just anyone. But its worthy sharing to demonstrate how some planning can overcome some apparent obstacles. Two key issues -
1. Someone as an owner of pre-CGT land
2. The land owner is interested in a development but doesn't want to do it themselves (or lacks financial capacity to do so)
Pre- CGT land. Common to older people. Land acquired prior to 20 Sept 1985 isn't subject to capital gains tax. So all concerns about the main residence exemption etc can be disregarded. Does this mean all the profit will be tax free ?? Hell no. CGT event K4 applies to land when it become "trading stock". The owner uses market value for the trading stock acquired. This effectively triggers an exempt capital gain. (No tax) This also ensures the highest possible value for trading stock so that the profit subject to ordinary income tax provisions later is minimised.
Now the owner issue is part of the problem. This may occur with an older relative even a parent. They may have a large block capable of subdivision. We commonly encounter older retirees seeking to sell and move to smaller homes or even to aged care. The are usually uninterested in a development but are always interested in selling for a higher price.
Question is do you want to do a JV with them ? Subdiv, DA, clearing, construct and sell all comes at a cost. Perhaps you can be the financing party and they are the land contributor ?? In return splitting the after tax profits might be a suitable alternative.
The right structure and agreement needs to be used so that each party received a fixed agreed share of profits...A unit trust or company can be ideal.
