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Australia Challenging Property Development Tax Avoidance

Friday, August 1, 2014

Property developers are being warned by the Australian Taxation Office (ATO) not to use trusts to receive returns from property developments as capital gains instead of income.

According to Deputy Commissioner Tim Dyce, "A growing number of property developers are using trusts to suggest a development is a capital asset to generate rental income," to "claim the 50 per cent capital gains discount."

Dyce warned that penalties of up to 75 percent of the tax avoided can apply to those found to be deliberately using special purpose trusts to mischaracterize the proceeds of developments.

Any penalty will be significantly reduced if the developer makes a voluntary disclosure, however, the ATO said.

"The ATO has already raised millions in adjustments from people who exploit the system and our current compliance activity shows we are likely to make many more adjustments in the coming months," said Dyce. "Our inquiries indicate that these arrangements are contrived and some property developers are inappropriately claiming capital gains tax concessions. Property developers should return the income from developments to ensure they are complying with the law."