Key takeaways
Down payments arrive years ahead, but revenue and CIT arise only on transfer. Cash received on transfer day is often spent on debt and the next phase before the tax falls due. This can be prevented with a tax reserve account, a per-unit forecast, planned timing of transfers and a rolling cash flow.
Introduction
A common problem for property developers is that the cash is already in hand but revenue has not yet been recognised. On transfer day, the company recognises revenue, cost of sales and profit all at once, and CIT follows, even though most of the cash was spent long ago on construction and operations.
One-unit example
| Item | THB |
|---|---|
| Selling price | 10,000,000 |
| Down payment received in full (30%) | 3,000,000 |
| Transfer amount from the buyer's bank | 7,000,000 |
| Construction cost (WIP) | 7,500,000 |
| Gross profit | 2,500,000 |
| Operating costs and interest allocated to this unit | 1,000,000 |
Cash flow
| Stage | THB |
|---|---|
| Down payment received | 3,000,000 |
| Construction costs paid | (7,500,000) |
| Operating costs and interest paid | (1,000,000) |
| Net cash during construction | (5,500,000) |
| Received from the buyer's bank on transfer day | 7,000,000 |
| SBT at 3.3% of the full price | (330,000) |
| Transfer fee of 2% (assuming the appraised value equals the selling price and the seller bears all of it) | (200,000) |
| WHT at 1% of the selling price | (100,000) |
| Net cash on transfer day | 6,370,000 |
Income tax on this unit
Profit before tax: 10,000,000 − 7,500,000 − 330,000 − 200,000 − 1,000,000 = THB 970,000. CIT at 20% = THB 194,000. After deducting the WHT credit of THB 100,000, THB 94,000 remains payable.
If estimated prudently on the whole gross profit, CIT would be at most THB 500,000. This can be used to set the ceiling for the reserve, but it is not the actual tax if all expenses are deductible.
The real trap
The net cash of THB 6.37 million on transfer day is not idle money. It is often used to pay for:
- Construction of other units or phases
- Administration, salaries and operating expenses
- Bank loan
- Other taxes that fall due earlier
When PND 51 or PND 50 falls due, the company may not have enough cash. Unpaid tax incurs a surcharge of 1.5% per month or part of a month, calculated without compounding and capped at the amount of the tax. A penalty may also apply if the return is not filed or if an assessment is made.
If 20 units are transferred in the same year with total gross profit of THB 50 million, the CIT ceiling before deducting expenses is THB 10 million, but the cash from transfer day may already have been spent on the next phase.
4 safeguards
Safeguard 1: set up a separate tax reserve account
Every time a down payment is received, calculate the expected profit and immediately move the reserve into a separate account.
First down payment received: THB 500,000. Expected gross profit of 25% is THB 125,000. CIT reserve at 20% = THB 25,000.
Safeguard 2: unit-by-unit tax forecast
| Unit | Selling price | Cost | Expected profit | Expected maximum CIT | Expected transfer day | Reserved |
|---|---|---|---|---|---|---|
| A101 | 10,000,000 | 7,500,000 | 2,500,000 | 500,000 | Jun | 500,000 |
| A102 | 8,000,000 | 6,000,000 | 2,000,000 | 400,000 | Jul | 400,000 |
| A103 | 9,500,000 | 7,000,000 | 2,500,000 | 500,000 | Aug | 300,000 |
Unit A103 is still short of its reserve by THB 200,000. Finance must make up the shortfall before transfer day.
Safeguard 3: plan the timing of transfers
Spreading transfers should be tied to the accounting periods, not viewed only as one lump sum per year.
- If transfer takes place in late December, the revenue falls in that year. The half-year tax must be estimated from August, and PND 50 is due within 150 days, or around the end of May of the following year.
- If transfer takes place in early January, the revenue falls in the new period. It must be included in the PND 51 estimate filed by August of the same year, and PND 50 is due by May of the following year.
The timing of transfers must be consistent with the actual readiness of the unit and the buyer's rights, and must not be a deferral of revenue without factual basis.
Safeguard 4: monthly rolling cash flow
Show opening cash, cash received, construction payments, SBT, CIT, closing cash and the minimum threshold. Set the minimum threshold equal to the CIT falling due in the next 6 months, review it every month, and adjust it immediately when the transfer or construction plan changes.
Action table
| Action required | Timing |
|---|---|
| Calculate forecast CIT per unit | Before launching sales |
| Set aside the tax reserve | Every time a down payment is received |
| Review cash flow | Monthly |
| Review the unit-by-unit tax forecast | Quarterly |
| Request instalment payment of overdue taxes, if necessary | Before enforced collection, and check that the type of tax qualifies |
Closing thoughts
Cash comes in first and tax follows later, so the company must not spend all its cash before the tax arrives. This trap is structural, but it can be managed through cash discipline and per-unit monitoring.