CGT discount for developing

We are looking at starting a family trust, we are looking to purchase properties, getting plans and permits, and either building or selling. During holding period they will be rented and if we build they will be retained and rented.

I am concerned that given we plan to have ~ 5 properties and with sales timelines of 12 to 36 months it will be considered running a business rather than selling to realise an asset that was purchased to produce rental income. The difference being attracts a 50% CGT discount the other doesn't.

We were talking to a potential new accountant and he was quite concerned and indicated there isn't a 'magic' number or even perfect guidance as to what is or isn't running a business. Where as our current accountant was very relaxed and said as long as we hold for 12 months we are golden.

Thoughts?

I agree with your new accountant.

12mths is by no means golden at all, that is just the time that allows you to have 50% CGT.

You would need to hold them for around 5 years to prove more of an intent that they are an investment rather a business.

If the ATO sees you as a developer rather than an investor you will be up for company tax plus GST.

Tread carefully and strategise with your accountant.

In some instances merely getting a DA can prove intent to develop, even if you sell with DA and don't develop it yourself.

It all depends on your intention. The accountant will advise you depending on your intentions and story that you relay to them. So figure out what your "intentions" are, then communicate that to your accountant, to get the "advice" that you need.

From what you described, it sounds like an enterprise.

goonandtell said:

We are looking at starting a family trust, we are looking to purchase properties, getting plans and permits, and either building or selling. During holding period they will be rented and if we build they will be retained and rented.

I am concerned that given we plan to have ~ 5 properties and with sales timelines of 12 to 36 months it will be considered running a business rather than selling to realise an asset that was purchased to produce rental income. The difference being attracts a 50% CGT discount the other doesn't.

We were talking to a potential new accountant and he was quite concerned and indicated there isn't a 'magic' number or even perfect guidance as to what is or isn't running a business. Where as our current accountant was very relaxed and said as long as we hold for 12 months we are golden.

Thoughts?

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Any you sell within 5 years would be subject to GST also. There are numerous strategies and issues you need tax advice on in this area down to how you account for costs.

Any you sell soon after (or during) completion would NOT be subject to CGT rules whether its a business or not a business. The rules that apply are the "ordinary income" rules which predate CGT rules by decades. So the issue of a business can really be ignored. Stop thinking CGT and think income.

Any you retain MAY commence to become a CGT asset if you intent is to rent them and retain them. You cant claim the GST on build costs for these ones which makes the costs different for these.

Based on your explanation I'm not sure either accountant has given great advice. The 12 month issue isn't really correct and the other is correct about the quantity but the key issue is it doesn't matter !! Perhaps they aren't as familiar with developers and property taxes ?