If you run a property development business through multiple entities, the message is simple: check your structure now.
The Australian Taxation Office (ATO) recently issued “Taxpayer alert – contrived property development arrangements”, a signal the ATO has identified a pattern of arrangements it believes are being used to delay or reduce tax, sometimes indefinitely.
The ATO’s concern isn’t the use of multiple entities on its own, it’s whether the structure reflects what’s really happening commercially, or whether it exists primarily for a tax outcome.
The ATO has indicated it will look at both current and past projects.
What's the Focus?
The ATO is actively reviewing property development arrangements where there is a separation of land ownership, development activities and construction activities. The concern is that some of these structures artificially separate what is, in reality, a single property development activity — resulting in development profits being deferred, sometimes indefinitely.
The ATO has identified a common pattern below:
- A landowner entity (Land Co) owns the development site
- A related developer entity (Development Co) is often newly created and inserted between the landowner and the builder
- The landowner and developer are ultimately controlled by the same party
- Construction is undertaken by a separate builder entity (Builder Co)
- A Property Development Agreement (PDA) is entered into, usually using a long-term construction contract spanning multiple years
- The contract is structured so the developer claims deductions progressively, but does not recognise income until the project is finished
- The developer often has no staff or minimal assets and does not genuinely manage or control the development
- The developer records tax losses during the build, which are used to offset income elsewhere in the group
- When profits are finally recognised, a new project begins — meaning tax is continually deferred
Why the ATO Is Concerned
The ATO views these arrangements as higher tax risk because the landowner and developer are effectively undertaking one economic activity, the separation of roles may be contrived rather than commercial, and the structure can delay income recognition, generate artificial losses, and reduce or eliminate tax across the group. In some cases, wealth is accumulated and extracted without corresponding tax being paid.
Where the ATO considers the main purpose of the arrangement is to obtain a tax benefit, it may apply the general anti-avoidance rules in Part IVA — cancelling those tax benefits.
What the ATO Is Doing
- Engaging directly with taxpayers in higher-risk arrangements and reviewing both current and historical projects
- Publishing a Practical Compliance Guideline outlining higher and lower risk structures in the near term
- Applying penalties where arrangements are considered contrived
What this Means for Property Developers
Not all multi-entity structures or long-term contracts are unacceptable. However, developers should ensure that:
- Their structure reflects commercial reality
- Each entity has a genuine role, capability and decision-making authority
- Income and expenses are recognised in line with actual activity
- The structure was not designed primarily to achieve a tax timing benefit
Next Steps
Businesses using separate landowner, developer and builder entities, particularly where losses are involved, should review their arrangements with a specialist property development accountant. We can help walk through the steps below:
- Assess whether the structure makes sense without the tax outcome
- Obtain independent professional advice
- Apply for an ATO private ruling where uncertainty exists
- Make a voluntary disclosure if risks are identified
