Moving from building for other people to developing your own projects is a step plenty of builders take, and for good reason. The construction work is familiar ground and enjoying the full margin on offer in a development is enticing. What is new is everything around it: development is a different activity from building, with its own structure, its own finance, and its own tax treatment.
Most of what determines how a development turns out is decided before the land is bought. Which entity owns the project, whether it is built to sell or built to hold, how the land is acquired for GST purposes, and what the tax position will be at settlement are all set at the start, and each one is harder to change later.
A set of tax reforms currently working their way through Parliament will also have a bearing on how developments are taken on, so the groundwork before a purchase is worth getting right.
The first decision is whether the project is being developed to sell or developed to hold. That choice determines the structure, the tax position, the finance and the exit.
Settling that question at the start informs the choice of entity and structure. Moving the land into a different entity later attracts stamp duty, which makes a change of direction expensive to unwind. Most builders moving into development are building to sell, and confirming which of the two applies makes the rest of the structuring straightforward.
A high-level feasibility tells you whether a site is worth the cost of detailed investigation. Our feasibility tool gives you that read in a few minutes, before you spend money on the detailed work.
A few things worth watching:
The three reforms are at different stages. Two of them have been legislated, and the third has only been announced, so it carries less weight in a decision being made today.
Structure is the other area to get right before going into a new property venture. Property development often carries more risk than building under contract, so it makes sense to keep the development activity separate from the trading business. Where both sit in the one trading company, a claim or a loss on a project that runs into financial trouble can put the whole family group at risk. Holding the development in its own entity keeps that risk contained.
One approach is to set up a holding company separate from the building company, which then invests in special purpose companies that carry out the individual developments. Each development sits in its own company, so the risk stays with that company, and it can be closed out once the project is complete.
In Queensland, for example, the licensed building entity holds the QBCC licence, and its net tangible assets have to meet the minimum financial requirements for its licence category. Moving profits up to the holding company reduces those net tangible assets, so the timing of distributions and the licence category need to be planned together. Other states apply their own versions of this, with the trading entity required to hold a set asset position, so the licensing rules in the state you build in need to be factored into the structure.
Taking on development asks more of a business owner than building under contract does. Before you start, it is worth thinking about whether you have the ingredients in place to set yourself up for success:
There is no scheduled date. The measure has been announced but not legislated, and more detail is expected over the coming months. Until it is legislated, we would not make structural changes based on the proposal alone.
As a general rule, yes, where the finished home is sold. Building a new house to sell is a taxable supply, and a knockdown and rebuild that replaces the old building on the same land is treated as new residential premises. The position changes if you are building your own home to live in, where the main residence rules apply instead, so the intended use of the property determines the outcome. This is a separate question to the negative gearing new supply test, where a one-for-one knockdown and rebuild does not qualify.
It is an obligation on the buyer, not a holding arrangement. The buyer does not hold the money in their own account. They pay it to the ATO at settlement instead of handing it to you. The regime exists because some developers historically sold, never remitted the GST, then wound up the development company.
No. Complying super funds, including self-managed super funds, were excluded from the change. They keep their existing one-third CGT discount on assets held for more than twelve months, and the 30 June 2027 cost base reset that applies to individuals and trusts does not apply inside super.
In some circumstances, yes. Where a trust distributes to a bucket company, the 30% paid by the trustee would not be credited to that company, which then pays its own tax on top. That scenario is the one to model carefully if a bucket company is part of your current structure.
The webinar covers the feasibility tool, worked examples on the new CGT method, the structuring diagrams, and the finance comparison in detail.
If you are weighing up a development, or you are already holding land in a structure that these reforms will affect, we can walk through your position with you.
