Taxed on profit as income as the property was purchased to develop, theres no CGT therefore no 12 month 50% CGT discount
how to make $110k 12mths without quitting my day job
- Thread starter Erica
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Taxed on profit as income as the property was purchased to develop, theres no CGT therefore no 12 month 50% CGT discount
OK, its tax that has to be paid.
What can you clarify, I am sure developers pay CGT if selling ???? Pretty sure this has been mentioned by Paul in accounting section, I wish I was wrong
Income tax is payable on developments not CGT
To be honest gst Is harsh I agree but lots of people have to pay gst out there and income tax is certainly reasonable, why shouldn't profits be taxed?
Stamp duty is a stupid duty though and one I'd like to see abolished in favour of land tax but don't see it happening
OK, but the end result is the same, profit/CGT is tacked onto your income, the difference is if you are not a developer you get the 50% discount.
I think I need to do a little more reading on this stuff, someone sent me something the other day, just so many aspects to it.
Also, I purchase in a Trust this way I can distribute at least try to minimise the paint.
Cheers
MTR
Great stuff. Love reading all the comments, thanks for sharing!
UH OH! HURDLE NUMBER 1- Finance
Well it didn't take long for the first problem to arise...
Bank sent valuer through, happy with the price I paid but not with the condition of the house, bank only wants to lend on land value only, so instead of 90% of $445k they have come up with the figure of $380k land value so max lend @90% = $342k
So instead of the $45k deposit I was going to put in, I now have to come up with $103k, OWCH, lucky I still have some lending capacity on my other houses which are only at 80% LVR, so with some shuffling, maybe sell some shares (and perhaps a kidney) I will get it settled.
Did i mention I bought this at auction- so no subject to finance, no cooling off, if I was a first home buyer who couldn't get hold of the extra $50k I'd lose deposit, - good warning to first home buyers wanting to buy a 'renovators delight', tread very carefully.
I knew the house was in terrible condition before commiting and had finance pre-approved to go up to $450k. I took my builder through an open inspection and he pointed out a long list of problems and a quote to fix, so I went in with eyes wide open, and I assumed buying at auction meant bank would value same as purchace price as it is a transperrant process defining market value on the day (this was a contested auction, not negotiated, won fair and quare).
If the house was in good condition I would never have got it for $445- these subdividable ones have been selling in excess of $500k...
Well it didn't take long for the first problem to arise...
Bank sent valuer through, happy with the price I paid but not with the condition of the house, bank only wants to lend on land value only, so instead of 90% of $445k they have come up with the figure of $380k land value so max lend @90% = $342k
So instead of the $45k deposit I was going to put in, I now have to come up with $103k, OWCH, lucky I still have some lending capacity on my other houses which are only at 80% LVR, so with some shuffling, maybe sell some shares (and perhaps a kidney) I will get it settled.
Did i mention I bought this at auction- so no subject to finance, no cooling off, if I was a first home buyer who couldn't get hold of the extra $50k I'd lose deposit, - good warning to first home buyers wanting to buy a 'renovators delight', tread very carefully.
I knew the house was in terrible condition before commiting and had finance pre-approved to go up to $450k. I took my builder through an open inspection and he pointed out a long list of problems and a quote to fix, so I went in with eyes wide open, and I assumed buying at auction meant bank would value same as purchace price as it is a transperrant process defining market value on the day (this was a contested auction, not negotiated, won fair and quare).
If the house was in good condition I would never have got it for $445- these subdividable ones have been selling in excess of $500k...
You could look at going with bank that lends @ 80% of contract price. Works out to be $356,000 so able to borrow more and no LMI. Can still keep existing lending with current bank.
Wouldn't stress. You have equity available, will all be forgotten once you renovate the existing property and get a reval done. Just make sure you have enough equity available if you're also planning to use the equity for the costs of the development.
Wouldn't stress. You have equity available, will all be forgotten once you renovate the existing property and get a reval done. Just make sure you have enough equity available if you're also planning to use the equity for the costs of the development.
cheers Brady
That's good to know, wasn't sure what my options were next, so thanks.
At this stage the bank has asked for a building inspection report and a quote from a licenced builder of costs to carry out the necessary repairs, so I'm jumping though a few hoops to get that to them within a few days.
If that doesn't convince the bank to lend the 90% on contract price with MLI, I'll definitely go the 80% LVR without MLI. It's a no-brainer; $90k deposit @80% vs $105k deposit @90%+$6kMLI
That's good to know, wasn't sure what my options were next, so thanks.
At this stage the bank has asked for a building inspection report and a quote from a licenced builder of costs to carry out the necessary repairs, so I'm jumping though a few hoops to get that to them within a few days.
If that doesn't convince the bank to lend the 90% on contract price with MLI, I'll definitely go the 80% LVR without MLI. It's a no-brainer; $90k deposit @80% vs $105k deposit @90%+$6kMLI
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These are the sorts of properties were brokers can shine. 80% contract of sale policy would solve this, there even is the option of 90% no valuation.
It requires a little finesse, but quite a common occurance, especially amongst our reno clients.
80% contract of sale policy would solve this, there even is the option of 90% no valuation.It requires a little finesse, but quite a common occurance, especially amongst our reno clients.
Our son has this same issue. Bank valuer ignoring the house and lending on land value due to a couple is pulled up floorboards and couple of bits of evidence we had left in our investigations of old termite damage. I was gobsmacked. Broker was no help as next bank refused to revalue. They will use their own funds (and some family loan) to patch up and revalue in a few months.
Wrong bank and/or wrong LVR
One of mine has a hole through the ceiling and was able to purchase it
Check GST liability
Hi, you might wish to consult a good accountant for advice as you may be liable for GST on the sale of the land. From the ATO's point of view you maybe carrying on an 'enterprise, and thus the land could be taxed at one eleventh of the sale price. You can claim GST credits but it may change the project financials. This can apply even if you are not a full time developer and do a one off development transaction. Google ATO, GST and property, it will bring up the page on the Ato website. As a general rule of thumb if you buy a block of land and build a new house to sell, the sale is subject to GST. If you hold the house for at least 5 years it is treated as an investment and subject to capital gains tax less 50% discount. It is best to be sure, so recommend you consult an accountant.
Good luck
RM
Hi, you might wish to consult a good accountant for advice as you may be liable for GST on the sale of the land. From the ATO's point of view you maybe carrying on an 'enterprise, and thus the land could be taxed at one eleventh of the sale price. You can claim GST credits but it may change the project financials. This can apply even if you are not a full time developer and do a one off development transaction. Google ATO, GST and property, it will bring up the page on the Ato website. As a general rule of thumb if you buy a block of land and build a new house to sell, the sale is subject to GST. If you hold the house for at least 5 years it is treated as an investment and subject to capital gains tax less 50% discount. It is best to be sure, so recommend you consult an accountant.
Good luck
RM
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first hurdle cleared- yay
HAPPY DAY, mortgage broker finally got the ok from bank, I got the 90% lend after all, had to jump through some hoops by providing bank more paperwork to keep them happy:
- got building inspection done
- got quote from licenced builder of costs to repair all faults the building inspection identified
-got a specific cover letter from building inspector stating all defects were repairable- were just a result of lack of maintenance, and that the house is structurally sound
- signed a declaration stating we would carry out all repair works and that we had the funds available to do so
I'm relieved- the 90% lend means we will get it done comfortabally with plenty of buffer in our LOC for unexpected circumstances.
HAPPY DAY, mortgage broker finally got the ok from bank, I got the 90% lend after all, had to jump through some hoops by providing bank more paperwork to keep them happy:
- got building inspection done
- got quote from licenced builder of costs to repair all faults the building inspection identified
-got a specific cover letter from building inspector stating all defects were repairable- were just a result of lack of maintenance, and that the house is structurally sound
- signed a declaration stating we would carry out all repair works and that we had the funds available to do so
I'm relieved- the 90% lend means we will get it done comfortabally with plenty of buffer in our LOC for unexpected circumstances.
