Tax & Property Seminar Property development and tax a practical guide...1

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1 Property development and tax a practical guide Understanding the tax treatment of a property development business When will land held by a taxpayer in the business of property development be trading stock? How is land held as trading stock valued? How are interest expenses incurred in the property development business treated? Other tax issues for developers When is the income derived from the sale of trading stock? Tax consequences where a developer keeps a lot or apartment How is retention money treated? GST issues for property developers Changes to the GST treatment of residential premises GST and settlement adjustments on the supply and acquisition of real property GST overhaul of the margin scheme Structuring for developers checklist of issues to consider Understanding joint venture arrangements What is the difference between a joint venture and a partnership? Common questions and answers with joint ventures...36 One-off property transactions What is the tax treatment of a one-off development? How to determine whether the sale of land is a mere realisation or has a profit-making purpose Calculating the capital gain on a mere realisation Subdividing pre-cgt land without triggering CGT How to calculate a capital gain or loss on land acquired post-cgt Applying the small business concessions to a capital gain on a mere realisation Dealing with transactions entered into with a profit-making purpose Step 1 Calculating the net profit from an isolated transaction Step 2 calculating the net capital gain or loss from an isolated transaction...60 National Tax & Accountants Association Ltd: March April 2007 i

2 3.3 When is the income/capital gain derived? Structuring for a one-off transaction GST implications of one-off transactions When will an isolated transaction be an enterprise for GST purposes MT 2006/1? Land originally acquired for resale at a profit Land NOT originally acquired for resale at a profit...65 Tax effective structuring for property investors Structuring property investments for investors Should property ever be owned in an individual s name? Owning property as individuals in partnership Investing in property through a company Investing in property through a trust Investing in property through a superannuation fund What is the best structure for property investors? Investing as an individual is popular Positively geared property Structuring issues for professionals accountant, doctor, lawyer etc Dealing with specific structuring requirements Property syndicates What are the main tax issues associated with syndicates? Using a superannuation fund for property investment Dangers with SMSFs acquiring assets as tenants-in-common with a related party Avoid the borrowing restrictions under S.67 of the SIS Act Avoid the acquisitions from related party rule in S When can an SMSF invest in a related non-geared trust? Maintaining pre-11 August 1999 investments in a unit trust Checklist of pre-11 August 1999 SMSF investments...91 ii National Tax & Accountants Association Ltd: March April 2007

3 Advanced tax planning with the main residence exemption The fundamentals of the main residence exemption When does the main residence exemption apply? What is required for a taxpayer to have ownership of a dwelling? When will the main residence exemption apply? Main residence used to carry on business When is a taxpayer s home also a place of business? Calculating the taxable capital gain under S Applying the small business CGT concessions planning opportunity! Recent changes affect taxpayers who run their business from their residence The temporary absence rule extending the main residence exemption Taxpayer must cease to use dwelling as main residence audit trap! How to apply the 6 year rule when the dwelling is used for income producing purposes Main residence becomes income producing for first time after 20 August 1996 interaction with S Applying temporary absence rule to dwelling previously used to produce income audit trap! Applying temporary absence rule to foreign dwelling of new Australian resident planning opportunity! When to make the choice planning opportunities for taxpayers with more than one dwelling Main residence used to produce income for the first time after 20 August Calculating the taxpayer s capital gain or capital loss Tax planning and audit traps with S The 4 year construction rule extending the main residence exemption Dwellings that are built, repaired or renovated after land is purchased maximising the exemption! Existing dwellings that are occupied before being re-built, repaired or renovated limited exemption! Demolishing an existing home to build a new home planning opportunity! When to make the choice taxpayers living in another dwelling during period of construction National Tax & Accountants Association Ltd: March April 2007 iii

4 6. Maximising the main residence exemption for spouses with separate main residences How to apply the main residence exemption to spouses with separate main residences How to make the right choice for spouses with separate main residences planning opportunities! CGT relief on marriage breakdown and the main residence exemption Background CGT relief on marriage breakdown CGT Roll-over relief on marriage breakdown extended to Binding Financial Agreements Interaction of main residence exemption and CGT rollover upon divorce Inheriting a property maximising the main residence exemption Deceased acquired the dwelling pre-cgt Deceased acquired the dwelling post-cgt Deceased owned dwelling as a joint tenant LPR of estate acquires main residence for beneficiary Capital gains tax ( CGT ) compliance activities New data matching program for property sales Declaring capital gains in the wrong income year Problems with applying the main residence exemption Rental properties update Purchasing a rental property avoid nasty surprises Allocating part of the purchase cost to depreciating assets Deductions for capital works ( building write-off ) Division Cost base issues for CGT purposes Purchase costs burning issues Deductibility of deposit bond/bank guarantee fees How are adjustments for rates treated? Penalty interest for delayed settlement on the purchase of a rental property Treatment of mortgage insurance How recent changes to the CGT cost base rules affect landlords Second element incidental costs iv National Tax & Accountants Association Ltd: March April 2007

5 3.2 Third element costs of ownership Fourth element improvement expenses Tax treatment of common purchase costs Interest deductions for rental properties Interest incurred before rental property produces rent Interest incurred after a rental property is sold Penalty interest on early repayment of loan Dangers for loan accounts with redraw facilities Interest on joint loan but rental property in one name Interest expenses not deductible on loan used to purchase units in home loan trust Deductibility of interest where the loan proceeds are used to buy a spouse s interest in the existing home Common issues rental property expenses Body corporate fees and levies ATO guidelines for claiming deductions Deductions for repairs to a taxpayer s former home Travel costs related to a depreciable asset Tax planning maximising claims for jointly held properties Maximising the benefit of tax losses from a jointly held rental property Maximising depreciation claims for jointly held rental properties planning opportunities for landlords! Claiming deductions for prepaid expenditure in relation to a jointly owned rental property National Tax & Accountants Association Ltd: March April 2007 v

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