property development tax deductions

Are you keen to learn about property development tax deductions?

Residential property development is a way of generating income, which makes it a business. Businesses, no matter what products or services they sell, have to pay tax.

But all companies can also claim tax deductions.

The Australian Taxation Office (ATO) has some pretty strict guidelines on what you can claim back on tax.

In this helpful article, we’re going to explain some property development tax deductions you can make, as well as discussing the implications of being taxed for developing property.

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Get Excited to Pay Tax

No, that heading isn’t a joke.

tax and property development

If you are paying tax on your profit from property development, you should be excited, not scared.

The more tax you wind up paying it’s because you are earning more. You are still walking away with a tidy sum of money.

It can be helpful to look at the tax office as a silent partner in your venture.

You take your cut if you have a partner they take theirs, and finally, the taxman gets his.

Tax Implications for Property Development

There are a few taxation implications for a property development project.

The first is Goods and Services Tax (or GST) on the sale of the properties.

gst property development

At Little Fish, we sell off the plan. We do this to see settlement quicker, which means the money in hand for ourselves or our clients.

Now to collect GST on a sale of property, you need to be registered for GST.

We recommend hiring an accountant to manage this for you and to manage the payment of GST to the ATO.

The second taxation implication is capital gains tax.

capital gains and property development

This is collected when you make a profit from a development project, and you distribute the profit to yourself.

This profit is looked at as an additional income stream, and you are taxed on it.

The only way to avoid capital gains tax is to move into the new dwelling and make it your principal place of residence.

But if you’ve done a dual occupancy subdivision you’ll have to pay capital gains on the sale of the other.

If you lease the other property, you’ll still be taxed on the rental income. There’s no way to avoid tax in life.

Well, there is, but it comes with the likely prospect of hefty fines and even jail terms.

What Property Developers Can Claim on Tax

what tax property developers can claim

Now we’ll get into what you can claim as a tax deduction if you run a property development business.

Claim GST Credits

You can claim GST credits for construction costs and any purchases related to your sales.

Local Government Rates

If your construction phase begins and rates have been paid for a year or quarter, you can deduct a portion of the rates.

This portion relates to the period after construction begins.

Finance and Loan Deductions

Any expenses incurred in taking out a property development loan are usually deductible over the loan term if it is less than five years.

These expenses include establishment fees, bank charges, legal fees, loan application fees and valuation fees.

However, your principal payments are not deductible as these are of a capital nature.

Depreciation Claims

You can claim 2.5% of depreciation of construction costs over 40 years if you are building a rental property as an investment.

This includes upfront expenses such as architect/design fees, engineering fees, surveying costs, approval fees, building fees, energy rating survey costs, town planning expenses and the cost of foundation excavations.

You can only claim these deductions after construction is finished and the property is on the rental market.

You can engage a surveyor or building inspector to prepare a depreciation report which you can then submit to the ATO as evidence of depreciation.

This applies if you lease out your new properties, which some people choose to do.

But if you sell, either off the plan or once complete, you’re looking at your capital gains tax.

Engage a Professional

development tax deductions

We mentioned it above, but we’ll repeat it. At Little Fish, we believe in the value of networks. If you’re not networking, you’re not working.

Your network should include a registered accountant.

They are the subject matter experts and will be able to advise you on what you can and cannot claim as property development tax deductions.

Remember – Paying Income Tax is a Positive

And we want to stress our first point again. If you are paying more tax because you are making more money, this is something you should be happy about.

It’s better than earning less and paying less tax. More income is a good thing.

You can even roll over your existing profit to begin a new development and get into a continuous cycle of generating profit for yourself.

What’s not to like about that?

One a side note: Here are some ideas around partnering with someone for you property development.

Get in Touch

little fish development management

This concludes our informative article about property development tax deductions.

If you’ve got any further questions about property development, or are considering trying it out, give the crew at Little Fish Property Developments a call.

We’re always up for a friendly chat and can provide a free consultation if you have land you wish to develop.

We can even project manage the entire process on your behalf. Call us on 1300 799 277.