Investor? Developer?

I have a meeting with my accountant on Friday and would like to go into it with my eyes open. What is the definition of an investor as opposed to a developer? I heard that a developer must have intent to sell? What are the different tax implications between the two?

Just looking into best set up for our current situation:

Currently - self employed (partnership). We have one house in NSW that is in personal names, one house in Vic in a family trust and waiting on settlement of another block of land in Vic (also in the trust).

Moving forward: We are subdividing the block (one title - three) and will build and hold on all three. (NSW and VIC houses were both build and hold).

What are the tax implications on the equity we pull out of the completed projects (substantial money in excess of $100K)?

There are 4 people who are part of the property investment, currently a unit trust with me as the trustee. Should I create 2 different companies - one for the business we currently run and one for the property investment? I'm getting so confused :cool:
 
Complex topic. Basically an investor buys with the aim of making money from rent and capital gains.

Generally no direct tax consequwnces on accessing equity but you will be borrowing money and deductibility will depend on use the money is put to.

Where a trust is involved there are additional legal issues to consider.

A person as trust of a trust holding property is generally not a good idea. When the trust is a unit trust it is even worse.
 
So setting a company up (on Friday) to act as trustee of the trust is the best way forward?

And we will be transferring to a company with our business - do we have to create two companies or can we use the same PTY LTD to run the property and the business?
 
What are the tax implications on the equity we pull out of the completed projects (substantial money in excess of $100K)?

If the trust did a equity release and borrowed it could payout unitholder/s and some of their units redeemed. They might be able to use the $ for private purposes. They might incur a capital gain. Problem I see is the trustee is you. That will pose a loan concern. A structure problem...And a likely lender concern in the present case with lenders shying from equity loans.

This is a complex area and warning bells ring when I see a human trustee. Its not clever. Competent advice is needed.
 
Yep, we've established a restructure is needed. Now I'm trying to work out the best way of moving forward. Should a company be the trustee of the current unit trust? I'm worried this might be beyond my current accountant...
 
of course if you want to be a development company that is fine but at least consider the alternatives.

Great document - thanks knightm! My problem is that this isn't a once off, this land was bought with the sole intention of subdividing and building on it - but not to sell (at least not for years). I will pull the equity out of each house though.

Whether we "regularly subdivide land" or not is another question. This is our first subdivision and I will do it again if the opportunity arises...
 
Yep, we've established a restructure is needed. Now I'm trying to work out the best way of moving forward. Should a company be the trustee of the current unit trust? I'm worried this might be beyond my current accountant...

If you think it is beyond your current accountant make an appointment to see paul...

Sounds like you need specific advice and not some forum hypotheticals
 
Subdivision isn't a CGT event and doesn't define trading stock or an enterprise.
The Trustee intent with use of each property is the key tax factor.
 
If you think it is beyond your current accountant make an appointment to see paul...

Sounds like you need specific advice and not some forum hypotheticals

Forum hypotheticals are helping me learn :)

I am worried about my current accountant though....I think I will have to find someone else (little bit sad after 10yrs with the same person!).

Thanks for all the feedback guys! :D
 
Yep, we've established a restructure is needed. Now I'm trying to work out the best way of moving forward. Should a company be the trustee of the current unit trust? I'm worried this might be beyond my current accountant...

IT DEPENDS.... There is a strategy where a human trustee beats a company trustee hands down. Can save tens of thousands in duty. Its a common law loophole.

You cant beat personal advice.
 
Forum hypotheticals are helping me learn :)

I am worried about my current accountant though....I think I will have to find someone else (little bit sad after 10yrs with the same person!).

Thanks for all the feedback guys! :D

Ask your accountant to explain how to use merger with a unit trust to save stamp duty. When they look blankly at you then find a new accountant who knows property taxes and how to use a trust for property strategies.

This stuff is specialised. Let me guess they setup the trust ?
 
So setting a company up (on Friday) to act as trustee of the trust is the best way forward?

And we will be transferring to a company with our business - do we have to create two companies or can we use the same PTY LTD to run the property and the business?

Generally a company as trustee is better. But as the trust is in existance there are many issues such as the need for new loans and changing title deeds if you were to change trustees.

Never use a trading company as trustee.
 
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