House building and Tax

[propertybuyingNZ]

Hi Guys,

I am exploring different scenarios going forward and one of them is building a house in the back yard of our residential home.
Would love to hear from people done this before and how you structured it legally and from the tax point of view?

What I have: Family trust owns the family home and the land, its a home and income, producing income to the trust already.

I am planning to build a further home and income (or 2 flat) property at the back and planning to subdivide it off from the main home. Not planning to sell at this stage but would like to be able to refinance and pull out invested funds.

1, I guess it has to go through the Trust, or would you do a separate company for this?
2, Would preliminary costs, (survey, architect fees, etc) be deductible in the case the build is not going ahead? or wasted money?
3, for accounting purposes, would you run it from a dedicated bank account?
4, What if I decide at a later stage to sell it anyway? how much it changes the setup?

Thanks much!
Pete

[motivated]

Many of the answers to your questions will depend on your intent. Are you doing for (long term) investment purposes or for profit?
Definitely sep bank account and not in the same legal entity as your home. Also Keep investments in a separate legal entity from projects undertaken for profit.
If you use an entity that does projects for profit, you will have a better chance of claiming prelim costs if the project does not proceed than if it is intended to be kept as an investment but then the tax situation will be completely different.
Each persons situation is so unique that you do need advice from a structures specialist, an accountant and a lawyer.
Maybe one of those experts will post something of use to you

[Rosco]

This kind of situation can be very fact dependent.

There are lots of ways you can do this, and it depends on your situation. I would suggest it is very worthwhile getting expert advice around this to ensure you do it the best way for you.

Generally there is an exception from tax on a subdivision if it is your family home. You might be able to use this to your advantage.

Or, generally there is an exception from tax if you subdivide and keep as long term rentals.

Your situation or circumstances could change these, so best to discuss fully with an expert.

Ross

[propertybuyingNZ]

Hi Guys,

thanks for the comments.
definitely not sale at this stage, I would want to keep it for long term.

architect has done some work on it already, not significant yet but first invoice raised, hence I need to know where (what entity) shall I pay it out from.

Hi Ross,
yeah, sent you an email about it over a week ago, not sure if you got it, or spotted it.

Cheers
Pete

[Rosco]

Sorry I missed that part of the email, and will cover on Wednesday too.

Ross

[propertybuyingNZ]

Thanks much Ross, look forward to it!

Cheers!