Structuring taxes on duplex

Hi everyone,

I'm about to get the ball rolling on planning and building a duplex and selling either just one of the houses, or maybe even both directly after completion. I'm a builder myself and have a company which will be building the duplex. This is my first development and I hope there'll be many more to come. I want to treat this not as something on the side from my full time job, but build up a business and develop full time.

There are quite a few duplexes being built and I see some getting built and put on the market straight after completion, wouldn't these developers be paying large amounts of CGT in comparison to those who hold it for a year?

In your experience, what'd be the best practices to implement during and after construction in regards to minimising taxes.

Thanks in advance.
 
As far as I know, if developing as a biz, you simply pay your taxes at regular company rates, and also take GST into consideration.
No CGT to be paid when selling.
 
Hi everyone,

I'm about to get the ball rolling on planning and building a duplex and selling either just one of the houses, or maybe even both directly after completion. I'm a builder myself and have a company which will be building the duplex. This is my first development and I hope there'll be many more to come. I want to treat this not as something on the side from my full time job, but build up a business and develop full time.

There are quite a few duplexes being built and I see some getting built and put on the market straight after completion, wouldn't these developers be paying large amounts of CGT in comparison to those who hold it for a year?

In your experience, what'd be the best practices to implement during and after construction in regards to minimising taxes.

Thanks in advance.

When calculating the profit ensure you factor in GST on the sale. The margin scheme may reduce it a bit. Perhaps also adjust costs for the GST you can claim only on the one you sell. The normal process is you calcim nothing unless its sold OTP but you keep records so you know how much and adjust the GST when it is sold to reduce the amount payable. Its all in the record keeping.

Then make sure you can apportion costs - after GST if required or with GST if its a keeper. Duplexes are a bit easier and often its just 50/50 for splitting costs but not always. When all that's done calculate the profit and its taxed as ordinary income. Taxpayers who build to sell do so as a revenue issue and its never a CGT matter.

The issues around using the related building co may affect your Depn claims for the one retained. See there is a special rule which may only recognise the costs for all depreciation and cap allowances based on the costs excluding a profit margin. This could unfairly impact you.

Personal tax advice is a must. Your plan should calculate the likely profits after all taxes correctly to determine if the effort is worth it. I see many who think they may make $400K to make $100K which after tax becomes $60K for a years effort and financial commitment.
 
Don't developers just roll the profits of the one they sell into the other one they didn't sell so they don't pay any tax until selling the 2nd one? Eg. adjusting the cost & sell price of the 1st one to be the same?
 
Don't developers just roll the profits of the one they sell into the other one they didn't sell so they don't pay any tax until selling the 2nd one? Eg. adjusting the cost & sell price of the 1st one to be the same?

In fairy land maybe. That's fraud. Criminal offence under Crimes Act.

I'm laughing at concept. Its trading stock. It has a cost. Like Corn Flakes at Woolies which is no different. Imagine if WOW rolled their profit into the carrying value of stock. The last box sold on 30 June is the one that makes the profit. $2 corn flake box make a $19million profit to defer tax.
 
In fairy land maybe. That's fraud. Criminal offence under Crimes Act.

I'm laughing at concept. Its trading stock. It has a cost. Like Corn Flakes at Woolies which is no different. Imagine if WOW rolled their profit into the carrying value of stock. The last box sold on 30 June is the one that makes the profit. $2 corn flake box make a $19million profit to defer tax.

I remember Henry Kaye promoting doing that before & apparently lots of developers were doing that too. Buy a block of land, develop 200 units, sell most of them then roll the sales profit into units they hold, therefore getting a free carry until they sell those. Maybe the laws have changed since then?
 
I remember Henry Kaye promoting doing that before & apparently lots of developers were doing that too. Buy a block of land, develop 200 units, sell most of them then roll the sales profit into units they hold, therefore getting a free carry until they sell those. Maybe the laws have changed since then?

No criminal law, common law and tax laws are the same. Its a tax scheme at best. Its blatant avoidance.

In a technical accounting sense its difficult to disguise and easily detected. Especially given GST reporting would see disclosure of sales within each tax period (qtr, month etc) on a BAS. So if the annual reported sales in a tax return don't correlate then a question gets asked.
 
What I've decided to do is keep 1 of the properties and sell the other. I'd rather hold one, rent it out afterwards and keep it as an IP.
Regarding the side I'll be selling, I've heard that after the subdivision (prior to construction) which will be done directly after DA approval, you can claim it as your PPR during the construction phase and some after. This may help with reducing the CGT to 50%.
The property is currently under my name and my building company will be building it. Is this the way to go about it?
Since I'll be doing a lot of the work myself, I'm going to be saving some costs. I'm afraid that I'll go to all this effort to do most of the work myself, reduce expenses, but then find I'll only have to pay more damn tax because I've reduced the expenses. Would it be a better idea to try and inflate the expenses column?
 
What I've decided to do is keep 1 of the properties and sell the other. I'd rather hold one, rent it out afterwards and keep it as an IP.
Regarding the side I'll be selling, I've heard that after the subdivision (prior to construction) which will be done directly after DA approval, you can claim it as your PPR during the construction phase and some after. This may help with reducing the CGT to 50%.
The property is currently under my name and my building company will be building it. Is this the way to go about it?
Since I'll be doing a lot of the work myself, I'm going to be saving some costs. I'm afraid that I'll go to all this effort to do most of the work myself, reduce expenses, but then find I'll only have to pay more damn tax because I've reduced the expenses. Would it be a better idea to try and inflate the expenses column?

Sounds like you are a builder and are doinng this to make money. CGT unlikely apply.
 
I am a builder but I'm not looking for cash flow, but would prefer to roll over majority of the profits into the one I'm intending on keeping. It was mentioned above that rolling profits over is illegal under criminal law, but I guess I'm seeking the legal route/loophole.
I had an idea of increasing the expenses of the unit which is being sold, and reducing the expenses for the unit that'll be retained. If the unit being sold is say 60% of the expenses and the retained unit is 40%, then that may save me some CGT in the short term.
 
I am a builder but I'm not looking for cash flow, but would prefer to roll over majority of the profits into the one I'm intending on keeping. It was mentioned above that rolling profits over is illegal under criminal law, but I guess I'm seeking the legal route/loophole.
I had an idea of increasing the expenses of the unit which is being sold, and reducing the expenses for the unit that'll be retained. If the unit being sold is say 60% of the expenses and the retained unit is 40%, then that may save me some CGT in the short term.

It may be straight income tax.

You can't artificially inflate the expenses for 1 unit, but must apportion them on a reasonable basis.

Rolling over profits to the next project is possible, but it won't save any tax. Some people think they can sell property A and buy property B which will offset the tax on property A, but it doesn't work like that in Australia.
 
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