House & Land Development Tax Planning Opportunities
Property Development Tax Planning Opportunities for Mums & Dads
Property development has become a way for mums & dads and the like to capitalise on their big backyards, with a small property development subdivision. Those with house lots over 1000m2 have opportunities to do their own development.
Every State, Region in Australia has minimum lots sizes depending on zoning.
See:- Brisbane City Council – Selected Zones and minimum lot sizes
| Zone | Zone precinct | Front lot (m2) | Rear lot (m2) |
|---|---|---|---|
| Low density residential | – | 450 | 600 |
| – | 400 (small lot) | 600 | |
| Low density residential around centres* | – | 300 (small lot) | 600 |
| Character residential | Character | 450 | 600 |
| Infill housing | 300 | 450 | |
| Low-medium density residential | 2 storey mix | 260 | 350 |
| 2 or 3 storey mix | 260 | 350 | |
| Up to 3 storeys | 180 | 350 | |
| Rural residential | – | 10,000 | – |
Proposed House & Land Development if you are a Developer |
Ex GST |
GST |
Gross |
| Sale Price of Complete House & Land | 1,250,000 | 125,000 | 1,375,000 |
Development Costs |
|||
| Land Purchase Cost (or deemed) | 300,000 | 30,000# | 330,000# |
| Stamp Duty on Land | 9,719 | 9,719 | |
| DA & Infrastructure Charges | 105,000 | 10,500 | 115,500 |
| Build Cost House | 550,000 | 55,000 | 605,000 |
| Landscaping On Completion | 16,500 | 1,650 | 18,150 |
| Agents Commission to Sell | 32,340 | 3,234 | 35,574 |
| Interest on the holding cost during build See Calc@ | 35,630 | – | 35,630 |
| Legal fees on the sale | 3,182 | 318 | 3,500 |
| Total Costs of the Project | 1,052,371 | 100,702 | 1,153,073 |
Pre Tax Profit |
197,629 | ||
GST Payable |
24,298 | ||
Cash inflow |
221,927 | ||
Less GST Payable |
– 24,298 | ||
Net After GST Cashflow |
197,629 | ||
Estimated Tax |
27.50% | 54348 | |
After Tax Cash Profit |
143281 |
The above example is on the assumption a developer has purchased the backyard block from a mum and dad.
# GST would not be applicable if splitting your own backyard on the deemed purchase value.
# GST Margin Scheme would provide a better tax outcome – saving GST on the sale, $1,375,000 – $300,000 = $1,075,000 @1/11 = $97,727, rather than $125,000, the difference would flow into increase before tax profits. In addition GST could still be claimed on the above development costs.
@ Interest holding cost would also be substantially less if you already own the land.
As you can see, if you have the energy, time, contacts, mums and dads can beat the property developers at their own game 🙂
Property Developments can come in varying degrees
- Developments can start as a simple split of the backyard to be sold off – generally with no GST, and CGT opportunities to reduce tax – profits on a Capital Account
- Similar to above, with the building of a house, to either sell – CGT Event on the land deemed as trading stock, GST – Margin Scheme, profit on Revenue Account
- As with option 2, however moving into the home to live in, and sell the old original front house – No GST, CGT Event, profit on the sale of front on Capital Account
- In addition to option 3, however renting out the front and or back new house – No GST, No CGT, rental income on a revenue account.
Either way many are sitting on valuable land that they no longer need, or want to mow, however would still like to live in the same or in a new area.
A small subdivision could be your ticket to fund your next move or fund your retirement.
If you would like further information, please contact our office to discuss your options.
