Property Development Accounting
Developing a property can be a stressful and a time-consuming affair. Not only do you need to carry out extensive research within the property market, but also having to organise finance, consultants and a builder can be very overwhelming. Many property developers neglect the fact that tax is another aspect that needs to be looked into diligently and this could potentially have the biggest impact when it comes to the outcome of your development and hence, property development accounting becomes a vital aspect for the success of your project. A property development accountant who is an expert and holds experience with property development projects is not one of the, but the most important consultant you shall be hiring for your project.
Your architect may cost you a few thousand, your town-planner may cost another few thousand and your builder will cost you a lot, but what really affects the bottom line is the tax you will end up paying. Your property development tax accountant should be able to set up a budget for your project and also advise from time to time, if you are running the project within the budget. Our property development accounting starts from the very first meeting.
Although as your property development accountant,we cannot predict the profitability on your project since this depends on market factors. However we can estimate the costs of development precisely. We will though say that there is potential to lose 10% in GST + 27.5% tax on income. This means losing out a total of 37.5% of your hard earned revenue to tax. Property developers who have completed projects will tell you, the process is quite involving and the effect of losing out approximately 40% to taxes is huge. This makes the property development accouting aspect of your project extremely vital.
An experienced property development accountant will be able to strategise and advise you when various tax effects would apply to your property development accounting:
• Sale of apartments, units, townhouses = GST/CGT
• Costs of Development = GST
• Change in ownership = Stamp Duty
• Income from Renting = Income Tax
• Sale of a rental property = CGT
• Sale of an off the plan property = Income Tax + GST
It is the effect of the above taxes that your property development accounting turns out to be quite complex. With every transaction in your business bank account for the property development project, the effect of the taxes mentioned above will apply, hence every transaction is a careful consideration of future tax implications. Given this it is crucial that the property development accounting be carried out by experienced property development accountants.
A single entity might run multiple projects, this may give rise to the below two accounting styles:
• Project based accounting – To correctly account for costs of different projects to keep a track of budgets. We can devise strategies to ensure that all aspects of project based accounting are managed project wise in case of multiple projects within the one entity.
• Stage based accounting for property development – A property development project moves through various stages as below and it is crucial to record transactions based on the stage of the property development project.
The major stages of a property development are as follows:
a. Acquisition
b. Plans & Permits
c. Engineering
d. Building
e. Sale
The taxes you pay and the way accounting is carried out depends on what you intend to do once the project is complete. This could mean you might wish to retain one or a few of the developed properties or you might intend to sell all off the plan.
Some basic information is available from visiting the below ATO link regarding property projects and tax:
See : Property Development, building & renovating:
This is where it is imperative that you have a property development accountant who is experienced in accounting for Property Developers, and that they understand your business and the internal workings. As your property development accountants, we meet with you and devise a blue print (feasibility analysis) of your project. This helps create a budget of various cost elements. Without a budget, you could end up over-capitalising on your project.
If you are a property developer and need to speak regarding property development accounting, we encourage you to give us a call.
A One Accountants are specialists in accounting for property developers. Whether you are a first time developer or a seasoned developer, you can rest assured that A One accountants will handle the burden of lodgements for you and make sure that you are compliant at all times. Please feel free to contact one of our friendly staff on 03 8609 1889 to organise a consultation.