The Situation

A client and his long-time friend decided to come together to undertake a property development project. They came to SaabTeece for advice on how the property development should be structured.

The Facts

• The intention from the beginning was to build and sell with a profit-making purpose.
• One of the two ‘developers’ holds a building licence.
• They will engage a builder to undertake the construction of the project.
• Both ‘developers’ have previously engaged in property development activities in the past.
• Whilst both ‘developers’ have the intention of building to sell, they want to ensure they have flexibility in how each of their potential profit is distributed.
• Each ‘developer’ already has a family trust with a corporate trustee that they use for investing purposes.

The Solution

• Establish a new company to conduct the property development in.
• This new company will have each developer’s respective family trust as shareholder.
• Profit of the development will be taxed in the company at 25%.
• The taxed profit will be paid equally to each shareholder as a franked dividend.
• Each developer then has the flexibility to decide, based on their own family situation, how the franked dividend is distributed to the beneficiaries of their respective family trust.

The Structure

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