is this arrangement legal.

[Oshawott]

really need some advise here.

looking at a property that has really good potential at a really good price point.
have done the numbers and even inflating the possible costs still works out ok after selling.

here is the problem:
basically at last minute MB told me and JV partner that if i put my name along with with JV partner, the serviceability fails.

if my jv partner buys it himself he will pass. problem is he does not have enough for deposit, subdivision and development of the block.

possible solution:

he buys the property under his name.
we signed a separate contract stating that i will provide X amount (which represents all the funds needed for project) which he will return to me + 50% of the profits after selling the houses.

question:
1. can i invoice him the 50% profit amount so that it will be an interest expense to him and not put him in a higher tax bracket? i will then pay the interest in my own tax bracket.

2. is it legal to do something like this? is there such a thing as too high interest? we are just trying to think of possible solutions. want to keep it 100% legal.

any advice greatly appreciated.

 

[Paul@PFI]

If you want a agreed share why not a company as the entity that acquires the land and does the build / sell etc ?? Personal / company borrowings. Shareholding 50/50. You lend what you agree. Each of you then have your agreed split and loan gets repaid. That works if intent is to sell straight after. CGT doesn't come into it anyway. Windup company at end ??

You realise this dev isn't subject to CGT but will be subject to GST ? Margin scheme may reduce that GST a bit.

 

[Oshawott]

hi Paul,

thanks for responding.

couple of reason, we do not have company set up as of yet. we want to take this property off market soon as possible. as i mentioned, broker informed us last minute about problem (bangs head )

and isn't a company subject to diff set of borrowing criteria?
but in any case, just thought if this is legal, it would be fastest as he can make an offer immediately.


We have already factored in GST into our calculations as well.

On that note regarding GST, you only pay GST on the new house that is sold right? old retained house no GST?
And also, can you claim the entire GST paid portion of the subdivision costs for the new house or will it be divided?

--------------------------------------------------------------------------------------
edit: really new at this so all my knowledge comes from lurking in somersoft, talking to people and reading some books.

 

[Terry_w]

There are many ways you could structure such a JV and many ways to split the profits. You should seek legal advice and taxation advice as many complex issues.

 

[Paul@PFI]

hi Paul,

thanks for responding.

couple of reason, we do not have company set up as of yet. we want to take this property off market soon as possible. as i mentioned, broker informed us last minute about problem (bangs head )

Cant choose structure after buying either :-(

and isn't a company subject to diff set of borrowing criteria? Maybe...That's your next issue to consider
but in any case, just thought if this is legal, it would be fastest as he can make an offer immediately. It doesn't work


We have already factored in GST into our calculations as well.

On that note regarding GST, you only pay GST on the new house that is sold right? old retained house no GST? Yes.
And also, can you claim the entire GST paid portion of the subdivision costs for the new house or will it be divided? Not if entity isn't registered and you don't have valid tax invoices. The portion relating to the old house may be ineligible. Construction of new - Most likely yes.

QUOTE]

Refer above.....

 

[Oshawott]

thanks very much for your responses Paul and Terry. appreciate it.

 

[sanj]

if you are looking to do a development like this in conjunctiuon with someone i would highly recommend speaking to either terry or paul. i havent dealt with them personally but theyve always provided good advice and you need to ensure youre making an informed decision re structure as lots can go wrong if you dont.

 

[westminster]

really need some advise here.

looking at a property that has really good potential at a really good price point.
have done the numbers and even inflating the possible costs still works out ok after selling.

here is the problem:
basically at last minute MB told me and JV partner that if i put my name along with with JV partner, the serviceability fails.

if my jv partner buys it himself he will pass. problem is he does not have enough for deposit, subdivision and development of the block.

possible solution:

he buys the property under his name.
we signed a separate contract stating that i will provide X amount (which represents all the funds needed for project) which he will return to me + 50% of the profits after selling the houses.

question:
1. can i invoice him the 50% profit amount so that it will be an interest expense to him and not put him in a higher tax bracket? i will then pay the interest in my own tax bracket.

2. is it legal to do something like this? is there such a thing as too high interest? we are just trying to think of possible solutions. want to keep it 100% legal.

any advice greatly appreciated.

Don't rush into this. Even if you met serviceability are you sure that it was the right way to have it in your personal names?

Things to consider - take it all under consideration

- rushed buying leads to epic fails
- incorrect structures lead to epic fails
- incorrect advice from mortgage brokers lead to epic fails

I would
- seek advice from another broker
- consider asking the vendor if they would accept an offer with "Bloke 1 and Bloke 2 Tenants in Common and or Nominees" so you can spend some time looking at structure
- seek advice from accountant

 

[Blacky]

- consider asking the vendor if they would accept an offer with "Bloke 1 and Bloke 2 Tenants in Common and or Nominees" so you can spend some time looking at structure

WM
I am 99% certain that the office of state revenue closed that old loophole down some years ago.
If you offer in this manner, and then change the purchase to the "nominee" then there is double stamp duty payable (even if you state who you nominate on the O&A).
Buyers agents act as agent and can therefore state that on the O&A. However, there is also a back up agreement between the agent and the buyer which clearly shows who the intended owner is.

As everyone else has said. Don't rush into these things. The deal of a lifetime comes around about once every 10mins.

Blacky

 

[sanj]

WM
I am 99% certain that the office of state revenue closed that old loophole down some years ago.
If you offer in this manner, and then change the purchase to the "nominee" then there is double stamp duty payable (even if you state who you nominate on the O&A).
Buyers agents act as agent and can therefore state that on the O&A. However, there is also a back up agreement between the agent and the buyer which clearly shows who the intended owner is.

As everyone else has said. Don't rush into these things. The deal of a lifetime comes around about once every 10mins.

Blacky

yup, the "and/or nominee" loophole closed over 5 years ago from memory

 

[Terry_w]

yup, the "and/or nominee" loophole closed over 5 years ago from memory

The and/or nominees is still possible but it is risky as if you get it wrong there will be 2 lots of stamp duty. Legal advice should be sought before entering into any contract especially one where you may nominate another purchaser before settlement.

 

[westminster]

Thanks for the Nominee information. Noted

 

[sanj]

The and/or nominees is still possible but it is risky as if you get it wrong there will be 2 lots of stamp duty. Legal advice should be sought before entering into any contract especially one where you may nominate another purchaser before settlement.

Terry do you mean through an agency type arrangement? From memory don't you need to have a clear, separate agreement done prior stating who you ate buying as agent for etc? Is my understanding of this correct?

 

[Terry_w]

Terry do you mean through an agency type arrangement? From memory don't you need to have a clear, separate agreement done prior stating who you ate buying as agent for etc? Is my understanding of this correct?

Varies from state to state.

 

[sanj]

Varies from state to state.

What about WA?

 

[Terry_w]

What about WA?

WA are very strict in this regard. Seek legal advice...