JV, tenants in common

[proprookie]

A friend and I are searching for vacant land with the intention to sub-divide,build and rent/sell. I've a couple of questions, please bare with me.

1) With 50-50 tenants in common, after sub-division each of the new blocks will also have both our names right?
2) If at a later stage, one of us decides to buy the other person's share then is it easy to unwind tenancy in common without paying stamp duty again?
3) Since the intention is to build and rent/sell, I assume the interest costs can be negative geared?
4) How about if we decide not to build but rather just sell the blocks would ATO be unhappy about the negative gearing as it may be seen as Landbanking? Would that incur GST?
5) Can LMI be part of the cost base when we sell?
6) Last but not least, other than the usual caution about JV'ing with friends - are there any tax and or finance consequences that one must consider?

Thanks a ton.

 

[Terry_w]

A friend and I are searching for vacant land with the intention to sub-divide,build and rent/sell. I've a couple of questions, please bare with me.

1) With 50-50 tenants in common, after sub-division each of the new blocks will also have both our names right?
2) If at a later stage, one of us decides to buy the other person's share then is it easy to unwind tenancy in common without paying stamp duty again?
3) Since the intention is to build and rent/sell, I assume the interest costs can be negative geared?
4) How about if we decide not to build but rather just sell the blocks would ATO be unhappy about the negative gearing as it may be seen as Landbanking? Would that incur GST?
5) Can LMI be part of the cost base when we sell?
6) Last but not least, other than the usual caution about JV'ing with friends - are there any tax and or finance consequences that one must consider?

Thanks a ton.

1. Yes
2. No
3. Possibly, depends
4. ATO doesn't have emotions but if you cannot claim interest against income you could claim against CGT. If CGT won't apply then you could claim it at the sale anyway. GST generally applies to the first sale of new residential land.
5. if not otherwise claimed
6. Consider using a unit trust? Easier for one partner to buy out the other.

 

[RPI]

See a lawyer in practices in that area in the state you are buying in. Very different rules for stamp duty between states. EG a Deed of Partition in some states will completely remove stamp duty for the separation of titles, in others it may only halve it or less. CGT and GST aspects of partitions are obviously Aus wide. This is a complex area that could cost you upwards of $5k for a tax barrister's advice on how to structure the partition to minimise or avoid triggering any of the above 3.

You then have to get the right broker to ensure the structure for the lend works.

 

[perthguy]

If you change the shares of the tenants in common e.g. from 50/50 to 60/40, you would likely incur a capital gain. I have an IP with an investment partner with an 80/20 split. If we wanted to make it 50/50 we would have to pay stamp duty and I would incur a 50k capital gain. Something to be aware of.