Property trading tax?

Question from Megan updated on 23rd July 2014:

I am interested in buying, renovating and selling residential property for profit? I would expect to complete two to three properties per year. Can you please advise if it is correct that the rate of property speculation tax for a property acquired and disposed of within six months is 90% of the profit? If this is the case, it seems extremely high. Would it be best to have the renovations running as a business and would I then only be required to pay tax on the profit of the business as a whole at the business tax rate of 28%? Rather than paying property speculation tax on the profit of the individual property sale?

Our expert Mark Withers responded:

Dear Megan thankfully, that is incorrect. Gains from taxable land transactions are taxable under the income tax act. The tax rates applied are in accordance with normal income tax rates. For trusts and individuals with incomes in excess of $70,000 the tax rate is 33%. Companies are taxed at 28% but when they distribute profits as dividends, a 5% top up is often required to get to the shareholder rate of 33%. Bear in mind also that the activity will require GST registration when it is continuous and regular. This means 15% is payable on sales but claimable on costs. The income tax is calculated on the profit net of GST. It is quite common for active property traders and developers to use companies but all the structuring options should be explored with your advisors to select the one that is most suitable for your circumstances.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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