The correct process to be followed by the SMSF and the developer involved in joint venture
Scenario:
I have an unincorporated joint venture (JV) in place between my development company and SMSF that owns the land. The SMSF owns the land unencumbered and the development entity is paying for the total cost to real property. The developer is entitled to a “fee” of 1.5% over and above the cost of development. The costs and the fee will only be payable to the developer once the project is complete and the sale proceeds of the project. The landowner (SMSF) will be the legal and beneficial owner. There is a clause in the agreement that the sale proceeds payment will be allocated to any lenders, any other third parties, the developer for costs and fees and the landowner in an order. Is it correct that the SMSF to bank all sale proceeds and remit the relevant GST and developer to issue a tax invoice to the landowner for their proceeds share?
Explanation:
It is the fact that all proceeds from the sale of the developed lots are received for tax purposes by the SMSF because the SMSF is the owner and the vendor. The clause allocates the order of the payment, which leads to the developer may fund its cash flow by overdraft or loan, and those amounts are invoiced by the developer to the SMSF. The invoice will be a GST-liable supply as it is a service pursuant supply to the JV even though these costs are financial cost. Similarly, if there are any third-party costs that remained unpaid. The agreement should provide, separate cash flow clause, which is paying for the goods and services. The developer should be reimbursed by the SMSF or the SMSF should allow the developer to use the SMSF's bank account for payment.