Navigating Property Development Arrangements
Let's explore the technical aspects of property development arrangements:
1. Service Provision vs. Joint Venture: Such arrangements might not qualify as joint ventures, especially if participants aren't sharing development outputs. Instead, it's typically viewed as service supply for consideration. Even if the builder receives a unit as payment, it's considered service compensation (refer paragraph 43 of GSTR 2004/2).
2. Land Ownership and Tax Implications: Title retention by the landowner ensures they usually handle unit sales, preventing potential tax liabilities like income tax, GST, or stamp duty. This avoids complications that could arise from transferring land into the builder's name before sale. It's crucial for both parties to seek advice and document agreement terms.
3. Commercial Considerations: The landowner must ensure their profit and building fee are commercially viable, while the builder needs safeguards to ensure payment for services rendered upon eventual sale of units/lots.
4. Tax Treatment: If property sales aren't recognized purely on capital account for the landowner, the building fee becomes part of overall development costs or trading stock costs. Since the land never becomes the builder's trading stock, they can deduct building costs as incurred without adjustments. Income recognition for the builder depends on the agreement terms, possibly upon sale of properties or at specific milestones (refer to legal cases and TR 2018/3).
Understanding these nuances is crucial for navigating property development agreements effectively.
For tailored advice on property development taxation, consult Tax Ideas Accountants & Advisers at +61 2 8318 1545 or book an appointment via our live calendar.
