Structure for a small developer

Say my plan is to buy old houses, hold them for at least 3-5 years, and redevelop them into duplexes, units, etc.

What does everyone think of this structure:

1) Family trust with corp trustee to initially buy the houses
2) In 3 years (say) sell to a development company (owned by another family trust)
3) Potentially setting up a separate building company to contract for the building

The main issues I'm seeing is making sure I can claim the CGT discount (which I wouldn't be if I was classed as a developer), keeping the property separate from the liabilities of building, and making sure gains can be distributed in the most tax effective way.
Alex
 
Have you modeled this with some numbers, seems like selling to the other company might cost too much.

That was my thoughts without doing any models

cheers
quoll
 
Or go broke paying accounting fees, though I imagine I would do most of the work myself.

Seriously, though. The main objective is:
1) Make sure I get the CGT discount for as much as I can, hence why having a trust 'hold' the properties until I'm ready to develop them. The cost is that I'll have to pay stamp duty (and CGT, of course) when I transfer it into the development trust.
2) Say something goes wrong with the building part, I can just fold the building company without affecting the property itself. I've personally gone through trying to find a builder to rectify problems but the company was deregistered. Not saying I want to do this but want to have this option.

I'm going to have a non-working spouse and (fairly soon) kids. So for me there is a bit of scope for using family trusts, with the more long term benefits of asset protection and succession. Not planning to use a HDT.
Alex
 
Have you modeled this with some numbers, seems like selling to the other company might cost too much.

That was my thoughts without doing any models

cheers
quoll

Yes, the main cost here is the stamp duty on transfer.

Say I buy a place for 300k. In 5 years it goes up to 382k. The benefit is about 40k (50% CGT discount v no discount). It'll cost me maybe 10k to transfer the property.

Hmm.
Alex
 
nsw ways around stamp duty related parties. talk baker mckenzie. all revealed. complex and expensive so maybe not worth it. dont think they do on small amount. min fee i pay is $25K for stamp duty strategy so not worth it for little ones.
 
Say something goes wrong with the building part, I can just fold the building company without affecting the property itself. I've personally gone through trying to find a builder to rectify problems but the company was deregistered. Not saying I want to do this but want to have this option.

Alex

If your builder has retired or is now unlicenced (for whatever reason) you can get genuine defects repaired through your warranty insurance. Warranty insurance can be accessed if you builder is dead, bankrupt or no longer licenced.

If you are going to operate as a builder you will need to be eligible for warranty insurance. Have you looked into all of this in your state? I don't think that it will be as easy as you may think without having someone who is licenced as part of your building business. If you intend to do this yourself then you have to do a course, sit and exam, apply to the Warranty Insurers and then the Office of Fair Trading for a building licence. You can only build houses without warranty insurance when you build for yourself and the limit is now capped at one house every three years; even as an owner builder in NSW you now have to do a course which I think goes for a week! :confused:
 
Say my plan is to buy old houses, hold them for at least 3-5 years, and redevelop them into duplexes, units, etc.

What does everyone think of this structure:

1) Family trust with corp trustee to initially buy the houses
2) In 3 years (say) sell to a development company (owned by another family trust)
3) Potentially setting up a separate building company to contract for the building

The main issues I'm seeing is making sure I can claim the CGT discount (which I wouldn't be if I was classed as a developer), keeping the property separate from the liabilities of building, and making sure gains can be distributed in the most tax effective way.
Alex

perhaps you can consider:

sell to a development trust with a corp trustee

the development trust engage another company (owned by you) to be the project manager. this is so you can generate an income for yourself, increase the cost of the development, thus reduce your tax liabilities on your development profit

set up a building co if you like, but you'll need to have a licenced "nominated supervisor" and home warranty elegibility just for the company to get a licence.

distribute any undistributable profits from the development trust to a bucket company.
 
perhaps you can consider:

sell to a development trust with a corp trustee

the development trust engage another company (owned by you) to be the project manager. this is so you can generate an income for yourself, increase the cost of the development, thus reduce your tax liabilities on your development profit

set up a building co if you like, but you'll need to have a licenced "nominated supervisor" and home warranty elegibility just for the company to get a licence.

distribute any undistributable profits from the development trust to a bucket company.

I think the project management company was more what I was thinking about. I don't imagine myself doing the building. Though if the development trust is also controlled by me, what is the advantage of filtering 'project management' through the project management company? I would imagine excess profits from the development trust just goes to the bucket company as you suggested.
Alex
 
Yes, the main cost here is the stamp duty on transfer.

Say I buy a place for 300k. In 5 years it goes up to 382k. The benefit is about 40k (50% CGT discount v no discount). It'll cost me maybe 10k to transfer the property.

Hmm.
Alex

Actually, isn't the cgt
0.5 * cg * whatever your tax rate is
= .5*82k*.3 (.3 if using non working wife)
= 13k

and actually, only around $7k if she has no other income.....
 
Actually, isn't the cgt
0.5 * cg * whatever your tax rate is
= .5*82k*.3 (.3 if using non working wife)
= 13k

how I was thinking about it was that if I DIDN'T get the 50% discount the assessable income would be 82k, and if I did get the discount the assessable would be 41k. i.e. the assessable income difference would be 40k. I'm not including the actual tax payable because that's variable, and doesn't depend on whether I get the discount or not.

Seems to be a trade-off between getting or not getting the CGT discount and incurring or not incurring the transfer duty.
Alex
 
you would also save 1/11th of the $82k in GST. if you sold it to yourself at a good price you could save even more. interesting train of thought Alex.
 
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