• New Wave Accountants

Paying Tax For Property Developers Made Easy: Our Guide

Widely considered to be one of Australia’s quickest rising industries, the field of property development is receiving more and more hopeful investors every year.


Considering that the demand for land is something that never wanes no matter what year is it or what season we’re in, it’s easy to see why the field is regarded to be such a lucrative opportunity. Nowadays, property development is considered a critical income stream for those looking to cash in on present and realistic opportunities for profit.


Whether you decide to do it as a full-time, part-time, or once in a while, there’s no doubt that property development can be an opportunity well worth considering because of the growth that lies ahead. Before you purchase your first property to develop, however, it’s important to take notes on one key factor that will affect your overall experience: tax.


Tax on Property Development Profits


No, this isn’t satire: an increasing number of people are falling for the notion that tax and GST don’t need to be accounted for on profits made from property development.


Thanks to the overly persistent nature of most people jumping into the world of developing and selling properties, a growing number of investors are overlooking the crucial need to factor in their duties. Unfortunately, this trending development has led to an increase of cases of tax fraud, hefty penalties, and much discouragement—a deadly combo that kills lucrative careers before they even begin to flourish.


A Situational Matter


With all this talk about paying taxes on property development profit, it’s worth noting that the need to abide by guidelines set by the Australian Taxation Office (ATO) is a matter that falls into a sort of case-by-case basis. Although there is no one-size-fits-all answer on when you should or shouldn’t pay taxes on property development profits, it pays to be aware of the guidelines concerning the various types that you’ll be subject to.


Income Tax


In the past, the idea of paying income tax as a property developer was unheard of because many investors chose to declare a property they’re selling as their main residence and sell it tax-free. The problem, however, is that the main residence exemptions don’t always apply. Many unsuspecting developers are then left with major financial repercussions that take years to undo.


If the “make it my main residence” play doesn’t work when you try to sell a property, then you’re made to pay income tax—which leads to a bit of confusion over whether it should be treated as a capital gains tax event or ordinary income. To help you determine which specific course of action will be best suited to your situation, let’s look at the bigger, technical picture on which form of income dues you’ll need to declare on your next statement:


Ordinary Income and Capital Gains


In the scope of property development, the tax world maintains a clear distinction between two particular types of objectives when a title sale is made:


  • The first being a profit-making intention (ordinary income), and;

  • The second, being a mere realisation of an asset (capital gains).


The distinction between these two types of intentions is rooted in the fact that they have different taxation treatments. Developers must be aware of the differences between the two as they are determined by the manner of their sale. Unsurprisingly, accurately determining whether your income from a sale classifies as ordinary income or capital gains is a matter best left in the hands of a professional accountant—which is where the services of New Wave Accounting’s experts come in handy!


Concluvsion


When it comes to dealing with taxes as a property developer, it’s important to become well-versed with the ins and outs of paying your dues despite what other “thrifty” industry veterans tell you. By taking the time to familiarise yourself with the concepts mentioned above, it will be far easier to determine exactly how you should prepare come tax time and what you’ll need to account for in the process!


We're a small business accounting firm in the Gold Coast that specialises in various services, such as company set-ups and outsourced bookkeeping and accounting services. We also provide end-to-end accounting and bookkeeping services that help scale and grow various businesses. Get in touch with us today to see how we can keep you in financial shape!


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