Off the Plan

[Trader]

I'm new to this and want to ask if I am right with the following scenario.

If I.......

Registered for GST and built for profit.

Bought land from a developer (i.e $75,000)

Built a house on the land from a contractor ($110,000 inc GST)

Held it for less than 1 year, i.e sold it at building completion for $240,000

I would have to pay GST on 240,000 - 75,000 (i.e 165,000 or 16,500)

I claim back 11,000 GST from purchase so net GST of 5,500

Selling fees & Stamp duty cost say $15,000 (SA) claimable back through tax
plus GST on agent fees are claimable ($500)
Loan fees are tax deductable (say 13,875 pa)

This stacks up as:
240,000 - GST (5,000) = 235,000
235,000 = Capital gain of 60,000 (235,000-175,000)
60,000-15,000-13,875 = $31125 Taxable profit
tax at marginal rate CGT (30%)= $9337.5
so Net profit = $21787.50
Is this right?

Thanks

Chris

 

[MattR]

Trader,

I get the following. Assuming
1) Sales price is GST incl.
2) No GST on Land
3) The net of GST cost of stamp duty and agents is 15,000

GST on Sale using Margin scheme is 15,000 = (240,000-75,000)/11

So Net Sales is 225,000 = 240,000 - 15,000

Costs are: 203,875 = Land 75,000 + Build 100,000 + Agents & Stamp 15,000 + Interest 13,875

Net Profit = 21,125
Tax @30% = 6,337.50

There is no capital gain if purpose was to build for a profit.

 

[Trader]

Thanks for that,

I thought you still had to pay CGT. The $21k IS Net? so not $21k-$ 6xxx income tax? There has to be a better way than this to build and flip though. Any ideas anyone?

Cheers

Chris

 

[MattR]

Trader

The Net Profit is $21,125.
The Net Profit after Income Tax is $14,787.50

 

[Bushy]

Trader,
work out your scenario if you don't sell it for at least 6 yrs, you will probably make 25k each of the 6+ years with no holding costs ie cash neutral
Regards Bushy

 

[Trader]

That sounds good, what I wanted to do was turn over a few houses quickly, put the small-ish profits into my own home loan to reduce the debt. This would improve my cash flow sufficiently to consider rental properties and a more profitable long term view. Currently I have enough equity to borrow (about 70k) , but not enough cash flow to make negatively geared or neutral-ish investments viable. I am already GST registered for my own business so the whole GST etc process doesn't worry me too much. It's just a low risk vehicle to get short term gains for a longer term strategy. $15k would reduce my home loan and release $100 per month so if I did this 4 or 5 times then that would make more possibilities available. Unless someone has a better idea other than bank heists!

Cheers
Chris

 

[secret squirrel]

is why trust is good for developer. u start next development. setup new trust beforehand. profits go from first trust to second trust. absorb losses in second trust from first trust. delay tax. not pay anything but absorb for later. delay tax bill. must make fte and iee. is important. maybe liquidate trust later on. tax man gets small amount in the dollar.

 

[Trader]

Sorry SS, din't quite understand, what is fte & iee?

 

[MattR]

Sorry SS, din't quite understand, what is fte & iee?

fte = family trust election. Briefly, to do with trust losses among other things.

iee = interposed entity election. Briefly, to do with inter entity distributions.

As for the rest of SS's post, I hope they will illuminate us with a bit more info.

 

[kris]

is why trust is good for developer. u start next development. setup new trust beforehand. profits go from first trust to second trust. absorb losses in second trust from first trust. delay tax. not pay anything but absorb for later. delay tax bill. must make fte and iee. is important. maybe liquidate trust later on. tax man gets small amount in the dollar.

Care to elaborate.