Property Renovation business

[Monty Burns]

we have a few rental properties and have recently started renovation projects. We got advice that for tax purposes we should do this as a business.

Just wondering whether CGT provisions apply to properties if they are part of a business effectively treated as trading stock?

 

[Propertunity]

If you are buying and renovating property, say in a company structure, then yes, the properties are considered as trading stock and as such no CGT would apply, although you will pay company tax on any profits (after expenses including your wages) and no 50% discount on CGT would apply either.

You might want to take advice on what would happen if you made a decision to HOLD a property for an extended period if say, the market fell while you were renovating and you wanted to wait until the market recovered.

 

[knightm]

im really interested in comparative analysis of these options too. as far as i understand if you fancy you can pick growth markets and plan on holding properties for any length of time then the best path is to be an investor who rennovates for rental, then rents out as primary purpose. after 12 months 50% discount to cgt applies. Can neg gear along the way if cashflow on any property is neg and apply this to other income (for me paye)

BUT

If you churn too quick and sell too many you could be challenged and loose the above benefits and if you hold more than a few in one state then you pay land tax.

On the other hand if you want to buy renno sell quickly then a business may be a better option as if you dont want to rent it you might as well sell really quickly to maximise profit and minimise holding costs. I could be wrong but i think no cgt, no cgt 50% reduction either you wont hold 12 months anyway pay 30% company tax on all profit instead but probably more scope to offset "business" costs like cars office expenses etc which may benefit family lifestyle as well. Can anyone clarify other pros/cons, i think but not sure no land tax applies as houses are deemed trading stock.

maybe 3rd option is a trust company structure that allows a combination of the 2 pathways and bit more flexibility but I am still not sure what is best if you want to do a lot of rennos, with some held LT and some sold quickly?

 

[Aaron_C]

The other benefit of using the trading stock provisions is that any expense you incur during the renovation will be deductible instantly rather than added to the cost base (since there is no 'cost base' anymore). This may give rise to better timing if you are able to buy all your big ticket items like kitchens, bathrooms etc before the financial year and you have other business income to offset it against.

 

[Delilah]

If you are buying and renovating property, say in a company structure, then yes, the properties are considered as trading stock and as such no CGT would apply, although you will pay company tax on any profits (after expenses including your wages) and no 50% discount on CGT would apply either.

So does the expenses include all costs associated with renovating the property, plus interest and holding costs? Then also adding in your time and giving yourself a wage? So essentially you could make it look as though you made no profit and therefore pay no tax?

 

[Terry_w]

So does the expenses include all costs associated with renovating the property, plus interest and holding costs? Then also adding in your time and giving yourself a wage? So essentially you could make it look as though you made no profit and therefore pay no tax?

What about the tax on the wage?

 

[coastymike]

Terry

maybe the poster means the two partners have assisted withe the development process and using market rates it was determined that the costs for their time were 20k each. With the 2013 tax scales this would mean no income tax payable by the two partners and the trust/company would receive a deduction of 40k reducing its profits by 40k.

 

[Angel13]

Can you still make a profit renovating and flipping these days?

By the time you buy, pay stamp duty, legals, interest on holding, Reno cost + put all that time in, can you really still make a decant profit say within 3 months?

What kind of money can you make?