Are there alternative joint venture (JV) structures? Indeed there are.
What if you decided to use a company or unit trust as the JV vehicle?
The key difference between the partnership JV and company or unit trust from a structuring point of view is the issue of losses.
In a partnership JV, the losses on a current year basis are able to be claimed by each of the parties in their respective entities and can therefore help to offset other income and potentially reduce their tax liability.
When it comes to a company and/or unit trust structure, unfortunately, the losses are quarantined against future profits and as such you are unable to offset these losses on a current year basis against other income you may be generating.
Entering into a development agreement or construction contract between the entity developing the land (building company) and the entity holding the land (land owner) is one alternative that would allow the building company to take up the costs of the development as they are incurred on a year-by-year basis.
It is important to understand what structure best suits you and your business and that depending on the type of development and who you may partner with, it could be a different structure each time.
We would be happy to discuss your options with you, preferably, before you commence your next development.
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Tony has 33 years’ experience as an accountant, and 13 years’ experience as a CPA. His first 18 years’ experience involved financial, management and operational accounting roles at a senior management level, in the security, transport, and forensic accounting industries