Disposal Costs and Selling Costs in Development Feasibility

Disposal costs are everything it takes to convert a finished building into cash in the bank: selling agent commission, project marketing, sales legals, title and plan registration, settlement adjustments, and the amounts a purchaser is required to withhold and send elsewhere before the balance reaches your settlement account. On a residential project they commonly land somewhere in a band of roughly 3 to 6 per cent of gross realisation, and they are among the most reliably under-provisioned lines in a feasibility because the largest of them, commission, is the only one most models bother with.

Before considering how disposal costs are treated for goods and services tax (GST), withholding and income tax purposes, you’ll need professional advice from a lawyer and an accountant. The reason is that several of these lines are not costs you choose at all. They are statutory obligations that attach to the transaction, and the consequences of getting them wrong fall on you as vendor: a purchaser who is required to withhold and does not may leave you exposed, a disclosure defect can hand a buyer a right to terminate months after exchange, and a missing clearance certificate can strand 15 per cent of every settlement with the Australian Taxation Office (ATO). Your lawyer decides what the contract and disclosure package must contain in your state. Your accountant decides how the GST, withholding and income tax treatment actually works on your structure and your numbers. This guide is written to make that conversation shorter, not to replace it, and the section near the end sets out the questions worth putting to each of them.

Figures, rates and thresholds below were current at the date of writing and they do change, sometimes with very little notice. Each one is linked to the primary source that publishes it, and that source rather than this page is where to confirm it before you rely on it.

What counts as a disposal cost in a development feasibility?

A disposal cost is any cost incurred to achieve and complete a sale, as distinct from a cost incurred to create the asset. The practical test most models use is whether the cost would disappear if you decided to hold the completed building instead of selling it. Commission would. Construction would not.

On a typical residential project the list runs to around a dozen lines:

• Selling agent commission, whether a project marketing agency, a residential sales agency or an in-house team on an incentive structure.
• Project marketing, which is a separate budget from commission and usually the second largest number: display suite fit-out and holding costs, renders and animations, physical model, brochures and price lists, signage and hoarding graphics, portal listings, digital advertising, launch events and public relations.
• Sales legal costs, split between preparing the contract and disclosure package once, and processing each individual sale.
• Disclosure and certificate costs, which vary by state and are covered below.
• Plan registration and title creation fees, payable to the state land registry to bring the strata or subdivision plan and the new certificates of title into existence.
• Discharge of mortgage fees on each lot as the facility is progressively repaid.
• Settlement adjustments for council rates, water, land tax where it may still be apportioned, and owners corporation or body corporate levies.
• Buyer incentives and rebates, including furniture packages, stamp duty contributions, fixed-price upgrades and rental guarantees.
• Amounts withheld at settlement and paid to a revenue authority rather than to you.
• Bank and trust account fees on the settlement process itself, and the cost of any deposit bond or bank guarantee arrangements you accept.

Two of these are not costs in the accounting sense at all. GST collected on a taxable sale and any amount withheld under the foreign resident capital gains withholding rules are not expenses, they are money that never belonged to you, or money credited against tax you owe and refunded to the extent it exceeds it. They belong in a feasibility as timing items rather than cost items, and confusing the two is where a lot of models go wrong. The distinction matters because a timing item can still break a facility even though it costs nothing.

A related point worth settling early with your accountant: gross realisation value is normally stated exclusive of GST in a feasibility, so every disposal cost deducted from it should be stated exclusive of GST too. Commission quoted at 2.5 per cent of a sale price is almost always quoted on the price the buyer pays, which includes GST, and the commission itself carries GST that you are generally entitled to claim back. Mixing a GST-inclusive commission figure into a GST-exclusive revenue line overstates the cost by a tenth, which sounds trivial until it is a tenth of the largest disposal line on a large project.

How do disposal costs bridge gross realisation value to net realisable value?

Gross realisation value is the total of every lot’s sale price. Net realisable value is what remains after the costs of achieving those sales. The bridge between them is the disposal cost schedule, and it is the only part of a feasibility where revenue gets smaller before profit is calculated. Everything else adds to cost.

Working the bridge on a 20-apartment project:

Total disposal costs of $820,000 are 4.1 per cent of the gross realisation value of $20,000,000. Against a total development cost of $16,500,000, made up of land at $6,000,000, construction at $8,600,000, professional fees and authority charges at $1,200,000 and funding costs at $700,000, the project returns a profit of $2,680,000. That is a development margin on cost of 16.2 per cent, and 13.4 per cent on gross realisation value excluding GST.

The convention matters when margins get compared. This example nets disposal costs off revenue and measures margin against a total development cost that excludes them. Many feasibilities instead carry selling and marketing inside total development cost, which on these figures gives $17,320,000 and a margin on cost of 15.5 per cent rather than 16.2 per cent. Neither is wrong, but two projects quoted on different conventions are not comparable, and a funder reading the number will usually want to know which one is in use.

Now provision only the commission, as a surprising number of early-stage models do, and the same project reports a profit of $3,000,000 and a margin on cost of 18.2 per cent. The $320,000 of marketing, legals and registration that went missing moves the headline margin by close to two full percentage points. On a deal being pitched at a 17 per cent hurdle, that omission is the difference between a project that clears and a project that does not, and it is discovered at the end rather than the beginning.

The net realisable value figure is also the number a funder is most likely to test, because it is the realistic recovery on the asset rather than the aspirational one. A feasibility that presents gross realisation value as the security position and treats disposal costs as a footnote tends to attract questions.

What does selling agent commission cost, and is it capped anywhere?

Commission is negotiated rather than set by a published statutory scale, and the governments of New South Wales, Victoria, Queensland and the Northern Territory each say so in their own guidance, as does the Real Estate Authority in New Zealand. What the law does regulate, closely, is the agreement itself, and in each of those places the agent’s entitlement to be paid at all is conditional on that agreement being compliant. That is the part with money in it for a developer.

As market practice, project marketing and residential agency commission on a development is commonly quoted somewhere around 2 to 3 per cent of the sale price, with a separate marketing budget on top, and commercial and industrial agency is commonly quoted lower. Those are indicative bands rather than rates, they vary considerably with project size, price point, location and how much of the marketing spend the agency is carrying, and the signed agency agreement is the only place to confirm what your own number is. Structures vary too: a flat percentage, a base percentage with a bonus above a target price, a per-lot fee, a retainer credited against commission, or a two-tier arrangement where the project marketer and an introducing agent split the fee.

New South Wales

Section 55 of the Property and Stock Agents Act 2002 (NSW) requires a written agency agreement before an agent provides services, and a copy signed by the licensee must be served on the client within 48 hours. The NSW Government’s guidance for property professionals states that the law does not fix or cap commission, and that an agent “is not entitled to any commission or expenses” where the agreement lacks proper execution, the client’s signature, regulatory compliance or timely service. Section 57 requires disclosure of the source and estimated amount of all rebates, discounts and commissions the licensee will receive on residential property or rural land, and an agent who omits that disclosure forfeits reimbursement of expenses. A one-day cooling-off period applies to residential and rural agency agreements under section 59, running from signing to 5pm on the next business day or Saturday. The details are set out in the NSW Government’s agency agreements guidance.

Victoria

Consumer Affairs Victoria states that commission is not set or capped by law, that the agent must tell the client the commission and expenses are negotiable before the authority is signed, and that the authority must state the agreed commission and expenses as a dollar amount or a percentage, with an example of the dollar amount where a percentage is used. Without a compliant written authority an agent cannot claim or sue for commission or expenses at all.

The rebate rule in Victoria is stronger than disclosure. Consumer Affairs Victoria states plainly that “it is illegal for an agent to keep a rebate, either monetary or non-monetary. It must immediately be paid to the client.” On a project carrying a marketing budget in the hundreds of thousands of dollars, across media placement, printing and production, that is a live question rather than a technicality, and the approved rebate statement in the authority is where it is answered. Exclusive and sole authorities must also carry a statement that the authority ends 30 days after an auction or 60 days after signing for a private sale, unless otherwise agreed. See the Consumer Affairs Victoria page on authorities, rebates and commission.

Queensland

Commission in Queensland is negotiable and not capped. An appointment must be made on the prescribed form, either the residential agent appointment (Form 6) or the commercial agent appointment (Form 6A), and the Queensland Government’s guidance on appointing a real estate sales agent states that the maximum term for a sole or exclusive agency appointment is 90 days, and that where the agreed term is longer than 60 days either party may end it by giving at least 30 days’ written notice while the appointment remains on foot for at least 60 days. The same guidance notes that cancelling an appointment incorrectly and then selling through another agent can result in two commissions becoming payable, which is a real risk on a staged release where agencies change between stages.

The remaining states and territories

The pattern is consistent, the drafting is not, and a developer selling in more than one jurisdiction cannot assume a single agency template works everywhere. Agency agreements and agents’ entitlement to commission are regulated by the Real Estate and Business Agents Act 1978 in Western Australia, the Land Agents Act 1994 in South Australia, and the Property Agents and Land Transactions Act 2016 in Tasmania. In the Australian Capital Territory the relevant statute is the Agents Act 2003, and in the Northern Territory it is the Agents Licensing Act; the Northern Territory Government publishes practical guidance on dealing with a real estate agent. The Northern Territory Government’s guidance states that commission and other terms may be negotiated with the agent. What each of these statutes regulates is licensing, trust accounting and the agreement itself, so the conditions attaching to the written agreement are worth reading before signing rather than after a dispute, and whether anything resembling a scale or a cap applies in a particular jurisdiction is a question for your lawyer against that state’s own Act.

The trap across all eight jurisdictions is the same, and it is not the rate. It is that a developer negotiates hard on the percentage, signs a document the agency drafted, and only later finds the agreement also commits the project to a marketing budget, a minimum term, an exclusivity that survives termination, or a fee that becomes payable on exchange rather than on settlement. Which of those applies changes the funding shape of the project, not just its cost.

Which disposal costs are funded from equity, and which come out of settlement proceeds?

This is the distinction that separates a disposal cost schedule that models correctly from one that only totals correctly, and it is invisible if the costs are entered as a single percentage of revenue.

Some disposal costs are deducted at settlement from the proceeds of the lot they relate to. Commission structured as payable on settlement, the per-lot conveyancing fee, the mortgage discharge fee and the settlement adjustments all work this way. They never need to be funded, because the money they come out of arrives in the same transaction. They reduce net proceeds and therefore reduce how fast debt is repaid, but they do not draw on a facility or on equity.

Other disposal costs are incurred long before the first settlement. The display suite is built during construction or earlier. Renders, brochures and portal campaigns are spent through the pre-sale period. The contract and disclosure package is drafted before a single lot is released. Commission structured as payable on exchange is spent as pre-sales are achieved, which can be a year or more before the money arrives. Every one of these has to be carried by equity or by the facility, with interest, until settlements begin.

Splitting the $820,000 in the earlier example: $280,000 of it, being the marketing budget and the one-off contract preparation, is spent before the first settlement and has to be funded. The remaining $540,000, being settlement commission, per-lot legals and registration, is deducted from proceeds as they arrive. The total is identical. The funding consequence is not, and it flows straight through to peak debt and funding exposure, because pre-settlement disposal costs land in exactly the part of the programme where exposure is already at its highest.

Two questions follow from this that a percentage-of-revenue assumption cannot answer. First, when does commission actually become payable under the agency agreement, on exchange, on unconditional, or on settlement? Second, if it is payable on exchange, will a lender accept that it is paid from the facility, or does it have to come from equity? The answer to the second one is a matter for the facility documents and the person who negotiates them, and the point of raising it here is that it changes the equity requirement of the deal rather than its total cost.

What sits in the marketing budget that is not commission?

The project marketing budget is a separate line from commission in almost every agency agreement, and on an apartment project it is routinely the second largest disposal cost. Commission buys the agency’s selling effort. The marketing budget buys everything a buyer sees before they meet an agent.

The components are consistent across projects even though the amounts are not: a display suite or furnished display apartment including fit-out, furniture, holding costs and eventual make-good or removal; computer-generated renders, floor plates, an animation or flythrough and sometimes a physical model; a brand identity, website, brochure, price lists and contract folders; site signage, hoarding graphics and wayfinding; portal listings and paid digital campaigns, usually the largest recurring item; database and email campaigns; launch events, and public relations or media placement.

Three characteristics make this line behave differently from the rest of the schedule. It is largely spent before revenue, as covered above. It is partly sunk the moment it is committed, so a slow release cannot be made cheaper by cancelling it late. And it is the line where the rebate question in section 57 of the Property and Stock Agents Act 2002 (NSW) and the Victorian rebate rule actually bite, because media placement, printing and production are the services on which rebates and volume discounts are most commonly available to an agency. Whether any rebate on your spend belongs to you or to the agency is answered by the agreement and by the state rule, not by custom.

What is withheld at settlement before the money reaches you?

Two Commonwealth withholding regimes can divert money at settlement on an Australian development sale. Neither is a cost in the accounting sense. Both change what arrives on the day, and one of them can be avoided entirely with a form lodged a month early.

Goods and services tax at settlement

Since the GST at settlement regime commenced, a purchaser of new residential premises or potential residential land who is not registered and acquiring for a creditable purpose is required to withhold an amount from the price and pay it directly to the ATO at settlement. The ATO’s guide for suppliers states the amounts as one eleventh of the contract price for a fully taxable supply, 7 per cent of the contract price where the margin scheme applies, and 10 per cent of the GST-exclusive market value for a supply between associates at below-market consideration, each rounded down to the nearest dollar. The supplier must notify the purchaser in writing before settlement whether a withholding obligation exists, and that notice may sit in the contract or in a separate document. Once the purchaser pays, the amount is allocated to the supplier’s GST property credit account, with an effective date of settlement, or of the payment receipt date where the purchaser pays more than 28 days after settlement. The ATO publishes the mechanics in its guide for suppliers and their representatives.

The cashflow consequence is easiest to see on one lot. On an apartment at $1,100,000 including GST as a fully taxable supply, $100,000 goes to the ATO and $1,000,000 reaches the settlement account for distribution to the facility and to you. Where the margin scheme applies, the withholding is 7 per cent of the contract price, being $77,000, which may be more or less than the actual GST liability on that lot, with the difference squared up through the activity statement. The GST was always payable, so nothing has been lost. What has changed is that the money is no longer available on settlement day to repay debt, and a feasibility that shows gross proceeds hitting the facility on settlement will overstate how quickly the facility clears. The interaction with the margin scheme, which is where most of the value in getting this right sits, is covered in the GST guide for Australian property development.

Foreign resident capital gains withholding

This is the one that catches Australian vendors, not foreign ones. Under the foreign resident capital gains withholding rules, the ATO states that from 1 January 2025 a 15 per cent withholding rate applies to all property sales regardless of value, replacing the previous 12.5 per cent rate that applied only to properties valued at $750,000 or more between 1 July 2017 and 31 December 2024. The threshold is gone, so every sale is in scope.

An Australian resident vendor avoids the withholding by giving the purchaser a valid clearance certificate at or before settlement. The ATO states that applications can take up to 28 days to process, that they must be lodged at least 28 days before settlement to be in hand in time, and that a certificate is valid for 12 months from its date of issue provided residency status does not change. There is no fee and no executed contract is required, so the ATO’s guidance is to apply as soon as a sale is being considered. The detail sits in the ATO’s withholding overview and its page on clearance certificates for Australian residents.

The arithmetic explains why this belongs in a feasibility rather than a conveyancing checklist. On the same 20-apartment project, 15 per cent of a $1,100,000 contract is $165,000 per lot. If the certificate is not in hand, and settlements are running, $3,300,000 across the project is withheld and sent to the ATO instead of to the facility. It is recoverable through the vendor entity’s tax return, which is a very different thing from being available on the day a lender expects a repayment. The trap is not the rule, it is the 28 days and the 12-month expiry: a certificate obtained for a project launch can lapse before the last stage settles, and the entity on the certificate has to be the entity on the contract, which is easy to get wrong where lots are held across several special purpose vehicles. The interaction with how the profit itself is taxed is a separate question, covered in the guide to capital gains tax on property development.

What legal and disclosure costs does a selling developer carry?

Sales legal costs split into two quite different things. One is a fixed project cost: drafting the contract of sale, the disclosure package, the plan and by-law documentation, and the special conditions. The other is a per-lot cost that scales with the number of settlements. Modelling them as a single percentage hides the fact that the first is spent before any revenue and the second is deducted from proceeds.

What the disclosure package must contain varies by state, and the vendor carries the cost of assembling it.

In New South Wales, an off-the-plan residential contract must have a disclosure statement attached before the purchaser signs, containing a draft plan showing lot number, area, easements and restrictions, a schedule of finishes, the section 88B instrument, by-laws and management statements for a strata scheme, and any development contract. Changes to material particulars affecting the use or enjoyment of the lot must be notified on the approved form, and within 14 days of notification a purchaser may rescind or claim compensation of up to 2 per cent of the price, with rescission requiring proof of material prejudice. Section 66ZS of the Conveyancing Act 1919 (NSW) prevents a developer terminating under a sunset clause without the purchaser’s consent or Supreme Court approval. The Registrar General sets out the regime on its off-the-plan page.

In Victoria, the vendor statement under section 32 of the Sale of Land Act 1962 (Vic) carries the disclosure burden, and the same Act governs how deposit money is handled. Section 25 requires deposit money to be paid into a special purpose account or held by a legal practitioner, conveyancer or estate agent, and section 27, headed “Release of deposit moneys in certain circumstances”, governs when it may be released to the vendor before settlement. The Act is available on the Victorian legislation register.

In Queensland, the seller disclosure scheme under the Property Law Act 2023 (Qld) commenced on 1 August 2025 and is the newest addition to this cost line. The Queensland Government states that a seller must give the buyer a completed seller disclosure statement (Form 2) together with the prescribed certificates before the buyer signs the contract, or before the fall of the hammer at auction. The prescribed certificates can include title searches, environmental and building notices, pool safety certificates, community management statements and body corporate certificates. Where disclosure is not given, or is inaccurate or incomplete, a buyer may terminate at any time up to settlement if the omission was material, they were unaware of it and they would not have signed had they known. Exemptions include sales to a government body, sales between related parties, and sales above $10,000,000 where disclosure is waived. The scheme is set out on the Queensland Government’s seller disclosure page.

The cost of assembling that package is modest against a project budget. The exposure created by getting it wrong is not, because a termination right that survives until settlement sits directly across the sell-down that repays the facility. That asymmetry is the reason this line is worth a conversation with your lawyer rather than a percentage in a cell.

Plan registration and title creation fees belong in the same group. They are payable to the state land registry to register the plan of subdivision or strata plan and issue the new titles, and mortgage discharge fees are payable as each lot is released from the facility. The amounts are set by each registry and reviewed annually, so the current schedule is the only reliable figure; NSW Land Registry Services publishes its fees, and the equivalent registry in each other state and territory does the same. A subdivision or strata project with many lots can see per-lot registry fees become a real number rather than a rounding item, and the timing is unhelpful, because registration has to happen before any lot can settle.

Which settlement adjustments move money, and where is apportionment prohibited?

Settlement adjustments are the small print that decides who pays for what on either side of the settlement date: council rates, water and sewerage charges, owners corporation or body corporate levies, and in some states land tax. Individually they are minor. Across a large sell-down they are not, and in Victoria one of them is now an offence.

From 1 January 2024, Victoria prohibited a vendor from passing on or apportioning land tax, and from passing on a known windfall gains tax liability, in a contract of sale of land. The State Revenue Office states that the prohibition does not apply where the contract price is $10,000,000 or greater, and that it is an offence for a vendor to enter into a contract that purports to require the purchaser to pay an amount for or towards the vendor’s land tax or known windfall gains tax liabilities. Contracts entered into before 1 January 2024 are unaffected. The amendments sit in the Sale of Land Act 1962 (Vic) and the Property Law Act 1958 (Vic), and the State Revenue Office summarises them in its changes to state taxes publication. Whether the $10,000,000 figure has since been indexed is worth checking with your lawyer against the current version of the Act, because it is the kind of threshold that moves.

The feasibility consequence in Victoria is direct. Land tax accruing across the holding and sell-down period stays with the vendor on every contract below the threshold, so it belongs in land holding costs for the full period rather than being partly recovered at each settlement. A model built on a standard national template that assumes land tax is adjusted at settlement will understate holding costs on a Victorian project, and the error grows with the length of the sell-down.

Elsewhere in Australia the position on apportioning land tax is set by each state’s own sale of land and revenue legislation and by what the contract provides, so it is a question for your lawyer on each jurisdiction you sell in rather than an assumption to carry across. Rates, water and levy adjustments remain ordinary practice everywhere, and on a staged settlement programme running over many months they are worth a line rather than nothing.

How do deposits, cooling off and rescission affect sell-down cashflow?

Deposit rules decide whether pre-sales are cash or merely comfort, and they differ enough between states to change the funding shape of a project.

In New South Wales, money paid as deposit or instalment on an off-the-plan contract “must be retained by the stakeholder in a trust or controlled money account during the contract period” and cannot be released to the vendor before settlement, according to the Registrar General. So on a New South Wales apartment project, deposits are not working capital. They demonstrate pre-sale cover to a funder, and nothing more. In Victoria, section 27 of the Sale of Land Act 1962 (Vic) allows release of deposit money in certain circumstances, which makes the same deposits a potential funding source on a Victorian project subject to the conditions in that section being met. That is a genuine difference in the shape of two otherwise identical deals, and it is the sort of thing a national feasibility template quietly gets wrong.

Cooling off affects the reliability of the sell-down rather than its cost. The NSW Government states that a 10 business day cooling-off period applies to off-the-plan residential contracts, against 5 business days for established property and none at an auction, and that a purchaser who rescinds during the cooling-off period forfeits 0.25 per cent of the purchase price to the vendor, which is $250 for every $100,000. Cooling off can be shortened, extended or waived by agreement, including by certificate. The NSW Government sets this out on its page on contracts and deposits. A forfeited 0.25 per cent does not cover the cost of re-marketing a lot, so in a model the relevant provision is not the forfeit, it is an allowance for a realistic fallover rate on exchanged contracts and the marketing cost of replacing them.

Where a purchaser offers a deposit bond or a bank guarantee instead of cash, the relevant questions are whether the facility documents accept it as pre-sale cover and on what terms. That is a matter for the facility and for your lawyer, and the category answer, that instruments and cash are not always treated alike, is the part that belongs in a feasibility assumption.

How do buyer incentives and rebates change the numbers?

Incentives are disposal costs wearing revenue’s clothing. A furniture package, a stamp duty contribution, a fixed-price upgrade allowance, a rental guarantee or a settlement rebate all reduce what the project nets from a lot, but they are usually agreed late, deal by deal, by whoever is closing the sale, and they rarely find their way back into the feasibility.

Returning to the earlier project with two changed inputs. Commission is negotiated down from 2.5 per cent to 2.0 per cent of the inclusive price, which reduces commission from $500,000 to $400,000 excluding GST. Four apartments are then sold with a $40,000 furniture package each, excluding GST, adding $160,000 of cost while the contract prices stay the same. Disposal costs become $880,000, or 4.4 per cent of gross realisation value, net realisable value falls to $19,120,000, and against the unchanged total development cost of $16,500,000 the profit is $2,620,000, a margin on cost of 15.9 per cent.

So a hard-won 50 basis points off the commission rate, worth $100,000, was more than consumed by $160,000 of incentives on four lots out of twenty, and the project finished $60,000 worse than before the negotiation. This is the ordinary pattern on a slow-moving release rather than a worst case, and the useful thing it shows is where the real movement is. Whether an incentive is structured as a price reduction or as a cost also changes the GST and disclosure treatment of the sale, which is a question for your accountant and your lawyer on each structure rather than a modelling choice.

How are disposal costs treated in the accounts?

For accounting purposes, selling costs are not part of the cost of the asset. Paragraph 16 of the Australian Accounting Standards Board standard AASB 102 Inventories lists the examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are incurred, and paragraph 16(d) is “selling costs”. The full text is on the Australian Accounting Standards Board site.

That has a practical effect on a developer holding a project as inventory. Marketing and selling costs generally cannot be capitalised into the carrying amount of the project the way construction costs can, so they tend to hit the profit and loss statement as they are incurred, which is typically before the revenue they were spent to achieve. On a project whose sell-down straddles a financial year end, the result can be a reported loss in the earlier year and a concentrated profit in the later one, on a project that was economically sound throughout. Whether that matters depends on covenants, on what a funder or an investor is looking at, and on the entity’s own reporting obligations, and it is a question for your accountant rather than a conclusion this guide can reach. The interaction with the project cashflow is worth mapping, because an accounting profile and a cash profile diverge most sharply on exactly these lines.

How do disposal costs work on a New Zealand project?

The structure is the same and three of the details differ enough to matter.

Commission is negotiable in New Zealand and not set by law. The agency agreement must state what commission is payable, when, and how it is calculated, and a required rebate form must state either the estimated amount and source of any rebate, discount or commission the agent will receive or that none will be received. Before signing, an agent must give a copy of the Real Estate Authority’s agency agreement guide and obtain written confirmation of receipt. A sole agency agreement may be cancelled by 5pm on the first working day after the client receives their copy, which is the right conferred by section 130 of the Real Estate Agents Act 2008, and where a sole agency runs longer than 90 days either party may end it in writing after that point. Settled.govt.nz, published by the Real Estate Authority, sets this out on its page on signing an agency agreement.

Residential land withholding tax is the New Zealand analogue of the Australian withholding regimes, and it operates at settlement. Inland Revenue states that it applies where the vendor is an offshore residential land withholding tax person, the land is New Zealand residential land, and the bright-line test applies to the sale, and that it is triggered when a purchase amount is paid or payable, excluding deposits or part payments totalling less than 50 per cent of the sale amount. The vendor’s conveyancer normally acts as the withholder; where the vendor has no conveyancer the purchaser’s conveyancer does, and where neither party has one the purchaser withholds after receiving the vendor’s declaration. The amount is worked out using Inland Revenue’s calculator rather than a single published rate, and the detail is on Inland Revenue’s page on when residential land withholding tax is deducted. Inland Revenue also states that the bright-line period is two years for property sold on or after 1 July 2024, down from five years for earlier sales of property acquired on or after 29 March 2018, which narrows the range of sales the withholding can apply to.

The third difference is the tax rate carried through the bridge. New Zealand’s goods and services tax rate is 15 per cent rather than 10 per cent, so the gap between an inclusive and an exclusive realisation figure is materially wider, and a commission percentage quoted on the inclusive price converts differently. A model ported from an Australian project without changing the rate will misstate both the revenue line and the commission deducted from it.

Where do developers most often under-provision?

The recurring omissions are consistent enough to be worth listing plainly.

Marketing treated as part of commission. It is a separate budget in almost every agency agreement, and it is the second largest line.

Commission applied to the wrong base. A percentage of the inclusive price entered against an exclusive revenue line overstates the cost by a tenth in Australia and more in New Zealand.

Everything modelled as a single percentage of revenue. This is arithmetically defensible and financially wrong, because it hides which costs need funding and which come out of proceeds.

Commission timing assumed to be settlement. Where the agreement makes it payable on exchange, the cost moves to the highest point of funding exposure and may need equity.

No clearance certificate lead time. Twenty-eight days to issue, 12 months’ validity, and the entity on the certificate must match the entity on the contract.

Gross proceeds shown reaching the facility at settlement. The GST withholding at one eleventh, or 7 per cent under the margin scheme, is diverted before the balance arrives.

Registry fees omitted on lot-heavy projects. Plan registration, title creation and per-lot discharges scale with lot count and must happen before any lot can settle.

Land tax assumed to be adjusted at settlement in Victoria. It cannot be passed on below the published threshold, so it stays in holding costs for the whole period.

Deposits treated as available cash in New South Wales. They sit in trust or a controlled money account and cannot be released to the vendor before settlement.

No allowance for fallover. Cooling-off rescissions, finance failures and defaults all cost re-marketing money that the 0.25 per cent forfeit does not cover.

Incentives never fed back into the model. They are agreed at the point of sale and they reduce net realisation exactly as commission does.

Disclosure defects treated as a legal risk rather than a revenue risk. In Queensland a material disclosure failure can support termination at any time up to settlement, which lands on the sell-down that repays the debt.

What to ask your lawyer

• Under our agency agreement, when exactly does commission become payable, on exchange, on the contract becoming unconditional, or on settlement? What survives termination of the agreement, and for how long?
• Does the agreement commit us to a marketing budget, a minimum term or an exclusivity that continues if we change agencies between stages? What is our exposure to two commissions on the same lot?
• Who is entitled to any rebate, discount or volume benefit on our marketing spend under the rule in our state, and what does the agreement say about it?
• What does our disclosure package have to contain in each state we are selling in, and what would give a purchaser a right to rescind or claim compensation after exchange?
• In Queensland, what prescribed certificates does the seller disclosure statement require for our scheme, and who is responsible for obtaining each of them before contracts are released?
• On a Victorian project, can we apportion land tax at settlement on any of our contracts, and what is the current threshold amount under the Sale of Land Act 1962 (Vic)?
• Can deposits be released to us before settlement in each state we are selling in, and on what conditions? Will our facility accept deposit bonds or bank guarantees as pre-sale cover?
• What is our position if a purchaser defaults after exchange, and what do we actually recover?

What to ask your accountant

• On our structure and our contracts, is each sale a fully taxable supply or a margin scheme supply, and what withholding amount will each purchaser be required to pay to the ATO at settlement?
• Which of our disposal costs carry GST that we can recover, and how should each be stated in a feasibility so that the revenue and cost lines are on the same basis?
• Which entity must hold the clearance certificate for each lot, when does each certificate expire, and how do we make sure none lapses part-way through the sell-down?
• How will marketing and selling costs be recognised in our accounts under the inventories accounting standard, and what does that do to reported profit across a sell-down that crosses a financial year end?
• If we offer incentives, is each one better characterised as a price reduction or a cost, and what does that change for GST and for the disclosure in the contract?
• On a New Zealand project, does residential land withholding tax apply to any of our vendor entities, and what would be deducted at settlement?
• What income tax will fall due on the profit, and when, relative to when the sell-down actually generates the cash to pay it?

What to ask your selling agent

• What is the commission rate, on what base, and is the quoted figure inclusive or exclusive of GST?
• What is in the marketing budget line by line, what is committed once we start, and what can still be stopped if the release is slow?
• What is the expected absorption rate by stage, and what has it actually been on comparable local projects in the last twelve months?
• What incentives do you expect to need at this price point, and what should we provision for them before we launch rather than after?
• What proportion of exchanged contracts have fallen over on your recent projects, and at what stage?