As a property developer, understanding tax planning strategies can help you maximise your profitability and minimise your tax liabilities. To help you maintain a thriving business, our property and construction accounting experts have compiled 10 essential tax planning strategies, exercises and tips for property developers. Let’s get cracking.
Tax Planning Strategy 1: Stock Valuation
Understanding the different methods of stock valuation can significantly impact your profit or loss for the year. Choose the method that best suits your business and use it consistently. Stock can be valued using one of three methods:
- The cost price method includes all costs associated with bringing the stock to its current condition and location. This may include the cost price plus freight, insurance, customs and excise duties, and delivery charges.
- The market selling value method uses the current value of stock if it is sold in the normal course of business.
- The replacement value method uses the cost to obtain an almost identical item that is available in the market on the last day of the income year.
Tax Planning Strategy 2: Temporary Full Expensing Concession
At this stage, 30 June 2023 signifies the end of the temporary full expensing concession. When you buy an asset, you can immediately claim 100% of the asset's value as a tax deduction (as opposed to over many years) under the government's coronavirus support measures. To get the deduction (benefit), the asset must be installed and ready for use before year-end. If you plan to purchase any assets, there are benefits in doing so before 30 June 2023.
Tax Planning Strategy 3: Loss Carry Back Tax Offset
FY23 is the final year of the loss carry back tax offset . If you had a profit in 2019, 2020, 2021 or 2022, but a loss in a subsequent year or 2023, you may be eligible to carry the loss back to obtain a refund of the prior tax paid.
Tax Planning Strategy 4: Undertake a Tax Planning Exercise
A tax planning exercise can help you map out your path to 30 June, rather than waiting until the last minute. Small businesses can consider prepaying certain deductions for expenses that will be used up within 12 months such as insurance, rent, interest and subscriptions. Get in touch with your accounting advisor now to start your FY23 tax planning process.
Tax Planning Strategy 5: Compile Accurate Work in Progress Figures
As a property developer, accurate work in progress figures are a key component of your balance sheet and critical to your tax planning strategy. Compiling precise figures as at 30 June, will let you align your relevant income with expenses incurred. This means you can accurately account for any work in progress and minimise your tax liability.
Tax Planning Strategy 6: Claiming Upfront Deductions
Claiming upfront deductions can be an effective strategy for property developers to reduce tax liability. To do this, you need to understand which expenses can be claimed as upfront deductions and which ones need to be added to cost bases. Expenses like rent and interest on loans can be claimed upfront. .
Tax Planning Strategy 7: Timing of Property Sales
Another tax planning strategy you might want to consider is timing your property sales. By delaying the sale until the new financial year, you can potentially reduce your taxable income for the current financial year. This can be especially useful if you're expecting a drop in income in the new financial year.
Tax Planning Strategy 8: Contract vs Settlement Dates
When it comes to property sales, the contract and settlement dates can make a significant difference to your taxable income. It's important to determine whether income from the sale of property is to be included at the contract date or settlement date, as these often cross over financial years.
Tax Planning Strategy 9: Consider Your Development Structure
The structure of your development can significantly impact your tax liabilities. Operating out of a trust, company, SMSF , or individual names will result in different outcomes. Choosing the right structure for your development can help you minimise your tax liability and maximise your wealth creation potential. However, it's important to seek professional advice before making any significant changes to your development structure. A tax advisor can help you assess the pros and cons of different structures and choose the one that best suits your needs.
Tax Planning Strategy 10: Maximising Deductible Debt
Structuring debt to maximise deductions and the split between deductible and non-deductible debt can have a significant impact over time. By maximising your deductible debt, you can reduce your taxable income and increase your cash flow.
Start Your Tax Planning ASAP
With our expert guidance, you can optimise your tax planning and focus on developing your properties with confidence. Implementing tax planning strategies can help property developers maximise profitability and minimise tax liabilities, but to ensure you get the maximum benefit from these tips, it's essential to work with experienced property and construction accounting experts .
At BlueRock, our accounting and tax team can help you navigate the complex tax landscape and implement effective tax planning strategies that will help you achieve your goals. Get in touch below to get started.
