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17-10-2020, 04:17 PM
#6941
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17-10-2020, 04:26 PM
#6942
No apologies Maverick. We really appreciate you and others sharing your skills and hard work with us. Some of us have offset our losses from earlier this year (banks, ZEL) by following shared thoughts on this forum.[/QUOTE]
kind of you to say Beat the Bank, thank you. In the years ahead you will have some good insights and between us all here we have a good chance of Beating the Insto's.
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17-10-2020, 04:53 PM
#6943
i second , or third or, fourth n that.
Thank you Mr B and Mr M.
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17-10-2020, 06:53 PM
#6944
Member
Agreed, thank you all for your insightful analysis.
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17-10-2020, 08:27 PM
#6945
Yes, many thanks for your detailed analysis there, Maverick. No apology ever needed for taking the time to explain!
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17-10-2020, 08:30 PM
#6946
Ditto that, blessed to have deep insights shared with us, certainly appreciated.
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17-10-2020, 08:49 PM
#6947
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18-10-2020, 10:18 AM
#6948
Member
From post #6793
Originally Posted by Beagle
.....What's he's talking about is the real money, not the 25% development margin.
For example John and Jenny buy a lovely unit at say Ellerslie for say $650K. Nine years later when they pass away their estate gets back about $450K after deductions but the unit is resold for $1,450K with nine years compound capital growth in value and the company makes $1m tax free on resale which is obviously vastly more than the 25% development margin when the $650K unit was first sold = $162K which was taxable.
....
Hey Beagle,
Could you please explain why the initial development margin is taxable income? I can understand the re-sale gain is essentially a tax free capital gain however not too sure why the initial sale is treated differently? It seems to me that the property when first developed is essentially trading-stock and then subsequently converted to a fixed asset?
Cheers
Last edited by baaantom; 18-10-2020 at 10:21 AM.
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18-10-2020, 01:53 PM
#6949
Disc: I don't do the financials' for any property company so this is not a tax opinion it is simply my understanding of the position.
Developed properties go straight to being fixed assets and are never sold, simply a license to occupy is issued in return for an interest free loan from the incoming resident.
Upon initial development there is a one off gain between the development cost and the initial value at which the transfer is made to fixed assets, (the development margin) which I understand as a property developer is taxed. I don't believe they're ever trading stock per se as no trading of the actual ownership of each unit ever occurs merely a license to occupy is issued.
The arrangement whereby someone loans OCA say $400K interest free for the right to occupy a care suite and agrees to pay $X a week in care fees comes under the financial arrangements provisions of the income tax act and I understand there has been a binding ruling that means that while retirement operators must pay tax on any profits from the weekly fees and tax of the 30% retention they take when the resident vacates the unit, (less the costs of refurbishment), they can reissue another license to occupy at a higher price down the track without any tax impost.
The above could easily be wrong, its simply my understanding of the system.
Last edited by Beagle; 18-10-2020 at 01:55 PM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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18-10-2020, 02:46 PM
#6950
A large part of the development cost is also capitalised (I.e roads, communal areas) and does not appear as part of the development margin in the income statement. I treat the “development margin” with a bit of caution as it does NOT mean that if all the units sell on a $100m development at 30% margin you now have $130m.
Last edited by James108; 18-10-2020 at 02:48 PM.
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