Taxing changes are favouring new builds
Question from Imogen updated on 2nd March 2022:
It seems recent investor taxing changes are favouring developing new builds. Our place has been OO for 20 years, is a corner site of 770m, is a desirable area and could fit 3-5 new homes. We are looking to either 1) sell to a developer as is, 2) Be involved in a group build, retaining a property as an investment when complete or 3) Attempt to develop the entire site ourselves and selling the lot or potentially retaining one. We are interested in broadly the tax implications of each option.
Our expert Mark Withers responded:
That’s a very big topic, so I will just cover some key things and recommend you meet an accountant to discuss.
- Construction of new investment dwellings will be “new builds” where interest will be deductible. Brightline will not be an issue unless the land is transferred to a new entity. If it is, five-year brightline will trigger.
- If you develop to sell, you will need to be GST registered. If the land is restructured there will be no GST claim as there is a second hand good restriction that prevents an input tax claim where land has been acquired from an associate.
- Structuring is more complex if you intend to keep and rent some and sell some. This is because section CB15 taxes any disposal gains made by associates of a developer if the land sold was ever held on revenue account by the developer. So careful partitioning of the beneficial ownership of the land is required at the beginning of the project to ensure the rentals that will be retained were never “ stock” of the development entity.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.
Search the Ask an Expert archive
Browse all questions in the Ask An Expert Archive »