Is there a preferred structure for undertaking property developments?
Although the ideal structure for a property development will always depend on the facts and circumstances relevant to the parties involved and the particular development being contemplated, it is still possible to outline some preferred structures.
However, a limiting factor is whether the land has already been acquired. If so, this may restrict the structuring options available (or create undesirable tax outcomes if it is transferred). Another important issue is whether the client is able to undertake the development alone, without needing input from other parties (apart from, for example, financiers, subcontractors), or whether the development will require substantial input from another external party (e.g., a builder).
Of course, tax issues will also be important, including being able to argue (if possible) that the sale of any property will be on capital account, rather than on revenue account, as well as the impact of needing to pay, claim or register for GST.
Structuring where the land has not yet been acquired
If the land has not yet been acquired, then this means the full range of structuring options should be open to the participants in the property development.
As a general proposition, if it is likely that the development will be on capital account (e.g., because the parties do not intend to develop the property for sale or any sale will be a ‘mere realisation’), then a trust is often a very good structure to consider. This is because trusts are able to access the CGT discount and also provide other advantages, such as superior asset protection (as compared with individuals, who can also access the 50% CGT discount).
A discretionary trust will be most useful where the parties intend to ‘go it alone’ so that any profits will remain within one family (and this structure allows flexible distributions of income and capital). However, if there are multiple unrelated parties involved, then a single discretionary trust will not be appropriate (although a partnership of discretionary trusts, or a joint venture arrangement involving one or more trusts, may instead be considered).