There are a number of tax implications that relate to property development and subdivision in Australia. Ensuring that you are aware of the requirements can help you to accurately assess the financial feasibility, and avoid the shock of unexpected costs, on your property development or subdivision project.
With an ever-expanding population and increasing demand for both commercial and residential properties, property development and subdivision in Australia can certainly provide exciting opportunities for investment and financial growth.
Like any investment or business opportunity, it is important to have a thorough understanding of all that is involved so that you can be sure you are making a well-informed decision and can be relatively confident of the outcome.
Be aware of all costs involved, including tax
In addition to addressing matters such as planning regulations, and contracts, of course, the financial aspects of a property development or subdivision project require careful consideration too. It is all too easy to get caught up focusing on potential earnings or profit. There are various costs to factor, such as material, labour, legal fees and the list goes on, but it is also very important to be aware of the tax implications that may apply to each property development or subdivision project. Not only are tax obligations a legal requirement, but they can also have a significant impact on your bottom line, which can come as a shock if not factored from the outset.
Which taxes could impact my property development or subdivision project?
Following is a summary of the main tax implications, and key points for each, that should be considered before embarking on a property development or subdivision venture in Australia.
Goods and Services Tax (GST)
If you are planning to undertake residential property development, you need to consider the application of GST. GST is generally applicable to the sale of new residential properties or vacant land intended for residential development. You should account for GST in your project costs and factor it into your pricing strategy. It is important to note that the sale of existing residential properties is generally not subject to GST.
The process of subdividing land is not subject to GST as there has not been a supply at that stage. However, you may have GST obligations and entitlements if you sell subdivided land with the intention of profit and in the course of carrying on a business or as a business or commercial transaction. Even with a one-off transaction, you may still be required to register for GST because your one-off property transaction may have the characteristics of a business deal.
Capital Gains Tax (CGT)
Some developers are typically liable for CGT on the profits earned from the sale of developed properties. CGT is calculated based on the difference between the property’s purchase price and the sale price, after deducting eligible costs and expenses. It is crucial to understand CGT implications and how they may impact your project’s profitability.
Income Tax
Property development activities can generate income that is subject to income tax. If you hold properties as trading stock, the profits from property sales are treated as ordinary income and taxed at your marginal tax rate. So if you are using company structure the relevant rate is 25%. However, if properties are held as investments, rental income and capital gains may be subject to income tax. It is important to understand the income tax implications specific to your circumstances.
Stamp/Transfer Duty
Stamp duty, or transfer duty as it is now known, is a state or territory tax imposed on certain property transactions. When acquiring land for development purposes or transferring properties, transfer duty may be applicable. The rates and exemptions vary across each state or territory, so it is necessary to consider these costs when evaluating your project’s financial feasibility.
Land Tax
Land tax is an annual tax levied on the ownership of land. Property developers who hold land for development purposes may be liable for land tax. The rates and thresholds differ across states and territories, so it is essential to understand the land tax implications specific to your location.
Seek Expert Tax Advice
As you can see, there are a number of tax implications that can impact a property development or subdivision project. Failing to correctly factor those costs and obligations can have a significant effect on the financial feasibility, and profitability, of your project.
That is why it is important to seek professional taxation advice as early as possible in the process to ensure that you are making a well-informed decision.
Contact the tax experts at The Quinn Group by calling 1300 (QUINNS) or + 61 2 9223 9166 or submit an online enquiry and schedule a meeting or teleconference to discuss the tax implications for your property development or subdivision project.
