Property Development Tax Structures: Who May Benefit
The choice of property development structures adopted for any property development project often has a key bearing on the tax implications and commercial viability of that particular project.
Capital gains tax (CGT) is an important consideration for investment property or development projects in Australia as is the relationship between property development and company tax rates.
In this article we consider property development structure options for:
- Landowners that have held land for investment (e.g. farm, lifestyle property or family home) now suitable for development;
- Property developers.
In particular, the following advantages will be achieved with proper documentation of the development arrangements:
- Landowners - ensure the unrealised gain at commencement is taxed as a capital gain rather than as ordinary income without incurring tax restructure costs. This may trigger concessions including the exemption for pre-CGT assets and the CGT discount for post-CGT assets;
- Property developers - offsetting the profit of one project against expenditure of the next project leading to a tax deferral.
Property Development Structures for Landowners
The circumstance we are dealing with is where a landowner has held a property on capital account (for example, a farming property or family home) which is now suitable for development.
A simple sale of the property may be eligible for capital gains tax concessions in Australia, including the CGT discount and small business concessions.
If the landowner undertakes a development activity, the activity will usually comprise the carrying on of a business or a profit-making undertaking in respect of which the profit will be taxed as ordinary income (not as capital gains).
To avoid this result, the usual recommendation is to transfer the property to a ...