Brisbane Property Network

1. Brisbane Property Network • Monday 30 April 2013 • Accounting and Tax Issues for Property Developers Follow me on Twitter @PaulCopelandWB

2. Topics Covered Today • Most common legal structures for property development • Advantages and disadvantages of the most popular structures • GST and the margin scheme

3. Disclaimer • The information contained in the presentation today is general in nature and should not be relied upon by anyone without first consulting a professional on the application of any of the information to their circumstances and their own issues.

4. Five Basic Structures • Individual or Sole Trader • Partnership • Company • Trust • Superannuation Fund • Company and Trust are most common

5. Private Proprietary Company • Advantages of Company Structure: • Company is a separate legal entity so can limit personal liability • New investors can easily be admitted as a shareholder • Flat rate of 30% tax • Shareholders have a definable entitlement • Profits can be retained in the 30% tax environment

6. Private Proprietary Company • Disadvantages of a company structure: • 50% exemption for capital gains tax not allowed • Difficult for tax-free amounts to pass to shareholders • Directors can still be held personally liable • Can not distribute losses to shareholders

7. Unit and Discretionary Trusts • Unit Trust:used by non-related investors looking to ensure their investment entitlements are clearly identifiable • Discretionary Trust:generally used by family groups and have no fixed entitlement to income or capital. Distributions are at the discretion of the trustee

8. Unit Trust • Advantages of a Unit Trust: • Provides asset protection when used with a corporate trustee – Not for the individual investor • Unit holders have a fixed interest and entitlement • The 50% CGT discount is available • Profits can be passed out to investors without tax having to have been paid which can be seen by some investors as a benefit

9. Unit Trust • Disadvantages of a Fixed Trust: • Can not distribute losses to individual investors • Income must be distributed at year end or is taxed at highest marginal tax rate

10. Discretionary Trust • Advantages of a Discretionary Trust: • Can be used at the investor entity or the developer • Liability can be limited using a corporate trustee • Flexible capital and income distributions • Access to the 50% CGT discount • No restrictions on tax free distributions

11. Discretionary Trust • Disadvantages of a Discretionary Trust: • Can not distribute losses to beneficiaries • Beneficiaries do not have a transferrable interest

12. Self Managed Superannuation Fund (SMSF) • An SMSF can not generally undertake a development directly • Main use is as an investor to receive profits and an additional source of capital • An SMSF is a variation of a trust structure so requires a trustee and deed

13. Self Managed Superannuation Fund • Disadvantages of a Superannuation Fund: • Difficult to access profits • Highly regulated and restricted operations • Can impact on your ability to borrow

14. Trust Structure – Working Example • Syndicate Structures • Then one from the Audience

15. Revenue & Capital Receipts • Leading on from structuring is the taxation of income from developments when they are completed. • Three main categories of revenue: • Ordinary Income • Capital Gains • Profit from a one off venture with a profit making intention

16. Investment Land to be Developed • Marie acquired her house in 2002 and it sat on 1.5 hectares. • She obtained a DA and then developed the property into 15 lots • She sold off the lots. She had never developed before and was retiring after that. • CGT issue • As capital – NO GST to consider either.

17. Consider Brendale Industrial Development • Development undertaken at Brendale. • Ten new sheds constructed but only eight sold. • Remaining two sheds are rented out and sold after three years • As last two sheds no longer trading stock – they are subject to capital gains tax on sale • GST will also need to be considered

18. GST and Property Development • GST applies at all stages of the development • Check registrations – www.abr.gov.au

19. GST and Property Development • Many issues to consider but selecting two to discuss and build some knowledge around are: • When do I register for GST? • Carrying on an enterprise • Turnover exceeds $75,000

20. Margin Scheme • Concession on GST payable on the sale of certain new properties • GST payable equals to one-eleventh of margin • Calculation of acquisition price • No input tax credit for a purchaser • Both parties to agree to the application

21. BAS & Record Keeping • Reviewing your financial position on an ongoing basis is just common sense • Cloud Accounting Software – XERO done as a monthly subscription • You start with the numbers by reviewing your feaso – don’t stop after that. • Sloppy record keeping = Bad outcomes.

22. BAS & Record keeping • What can happen from not knowing your financial position? • Cost over runs not identified quickly • Profit reduces increased project risk • Run out of money prior to completion • Make sure you have access to accurate and timely information

23. Conclusion • Having assisted property developer clients for 50 years, William Buck have a unique knowledge and expertise concerning this industry. • We are happy to assist with any accounting and taxation queries or advice that you may require. Follow me on Twitter @PaulCopelandWB