Managing cash flow & tax in Victoria’s property market

When it comes to property development, people often assume that if a project is profitable, cash flow won’t be a problem. I’ve seen plenty of developers fall into that trap, only to realise that profits and available cash don’t always go hand in hand.

This is something I refer to as the ‘cash flow hangover.’ You have sold a few lots, the balance sheet looks healthy, and things are tracking along. But before long, the cash from stage one is already committed to stage two, and then the tax bill lands. That is when the headaches begin.

Profit ≠ Cash: Why timing is everything

The most common pitfall I see is developers underestimating the timing of their tax obligations, particularly income tax and GST, and failing to account for delays in getting paid or unexpected costs that blow out budgets.

Planning for cash flow strain is absolutely critical in the early and middle stages of any development. Even with staged settlements and a seemingly solid forecast, small timing mismatches can create major liquidity issues, especially if you’re juggling repayments on external debt as well.

Our advice? Build in buffers. Be realistic, even conservative, with your forecasts - but not too conservative. There is a balance to strike: if you bake in too much delay or risk, the project might not even get off the ground on paper. But if you don’t allow enough, you’ll be scrambling when real-world issues hit.

It is all about the sequence

The other big challenge is managing timing mismatches between when you owe tax and when you get your hands on cash.

GST is a classic example.

Under the withholding rules, GST on sales is paid directly to the ATO at settlement—immediate. But when you’re trying to reclaim GST credits on your costs, you’re looking at a potential four- month lag between payment and refund.

That’s a long time to wait when you’re staring down a mounting list of contractor invoices.

Often developers may look to move to monthly BAS cycles. This creates more admin, however, the GST refunds in the development phase come quicker.

Prepayments and progress payments

And then there’s the issue of prepayments and progress payments. Many developers reinvest as they go, which is great for momentum, but without proper planning, it leaves them exposed when tax obligations on past profits suddenly come due. It is a classic case of looking forward without covering what's behind.

Structures and strategies: Not one-size-fits-all

We always tell clients: the structure you choose will impact everything from how tax- efficient your development is to how easily you can get your hands on the profits at the end.

A lot of owner/developers focus purely on the project’s profitability within the entity, without thinking about what it’ll take to extract that money personally - or reinvest it. There can be hidden tax layers when moving money from company to shareholder, and overlooking that early can lead to surprises down the track.

Trusts, companies, partnerships: each has pros and cons. The ‘best’ option depends on what you're trying to achieve, how many stakeholders are involved, your risk appetite, and your longer-term goals. It isn’t about creating the most complex structure; it’s about creating the right one.

Common planning mistakes and tax traps

One of the biggest mistakes we see is developers failing to involve their tax advisers early enough. Projects move quickly, legislation changes faster, and tax planning windows don’t stay open for long. If we don’t know where a client is in their development cycle, we can’t help them make timely decisions - whether it’s to defer income, accelerate deductions, or explore concessional super contributions.

Superannuation in tax planning

Speaking of superannuation, it can be a surprisingly effective tax planning tool, especially if part of the development is earmarked for long-term investment. For example, developers sometimes carve out a parcel of land to retain, and if structured properly, super funds can play a role in holding that asset. Of course, it needs careful management and the right advice, but the opportunities are there.

What’s coming next for Victorian developers?

Victorian developers are navigating an increasingly complex tax environment. Between windfall gains tax, land tax changes, and the new commercial and industrial property tax, the cost of holding property is going up and the pressure is mounting.

At the same time, the construction industry is facing high interest rates, supply chain disruption, and increased compliance requirements. For smaller players, especially, it’s a lot to handle—and easy to lose sight of the bigger picture.

Our key message? Cash flow is king. Structure your development for success, plan ahead for tax, and keep your advisors in the loop at every stage. Because when you’ve got the right team, good planning, and a buffer or two, even the trickiest developments can run like clockwork.

RSM has experienced professionals who understand the different sectors within the Real Estate & Construction industry, to help you reach your goals. Engage us early in your development and let’s set you up for success!

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact Patrick McMaster.