Accounting and tax issues in additional development projects

The key challenge of an additional development project is to figure out how to time it in a way that is optimal for the housing company's finances. In practice, this means planning the maintenance of the housing company so that the long-term process of additional development can be timed optimally with the major renovations. If necessary, a tax consultant will be involved in the project. 

When a plot is sold, the proceeds are realised in the financial year of signing the sales contract. To avoid paying corporation tax on a positive result, a corresponding amount of depreciation and deductions is needed. Since the proceeds from the sale of a plot cannot be reserved, renovations and the land use fee charged by the city must be timed so that the costs are accounted for at the latest in the financial year to which the proceeds are allocated. 

Renting a part of the plot generates a steady, albeit taxable, yearly income. Housing company's normal annual expenses and methods for adjusting the result, such as residential building provision, depreciation and management charge controlling, are usually sufficient without a risk of significant corporate taxes. A housing company is not a typical landlord of a plot in the market.

A directed share issue provides the housing company with new equity capital, which is not taxable income for the company. The proceeds from the subscription price of new shares are recorded in the company's restricted or unrestricted equity or in the construction fund. The company can later use the capital obtained to finance, for example, a renovation and modernisation project.

The compensation paid by the city for the transfer of part of the plot for infill development is taxable income. To avoid corporation tax, deductions and depreciation are needed for the bookkeeping purposes in the same way as for the sale of part of a plot. Again, deductions can be claimed from renovation projects, as long as the costs are incurred at the latest in the financial year to which the compensation paid for the transfer of the plot is allocated.