What is the best way to structure assets if subdividing a section?

Question from Charles Widdicombe updated on 13th November 2007:

Property development tax structures
If I have an intention to subdivide a large bare section into 2, build two houses and then sell. What is the best structure to execute this? I have an LAQC but obviously don't want to taint the company with capital gains on the sale of the new properties. Perhaps a trading trust? Or is this too complicated due to managing the liability of directors and shareholders of the corporate trustee?

Our expert responded:

The work you are contemplating doing definitely falls within the act of developing and therefore tax is payable on any profit. The only way to avoid being tainted is to set up a special purpose trading trust. It is not too complicated, and in fact, this is exactly what should be done in order to minimise the risk of different activites impacting on other activities. You should be aware though that the whole concept of tainting is under review at the moment by IRD and while no actual legislation has been proposed, there could be changes coming. However, under our current rules, you would need to use a special purpose trading trust for a transaction such as the one you have described.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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