ATO signals crackdown on property development tax avoidance schemes

“However, we are concerned about situations where related parties structure PDAs in an artificial or contrived manner to obtain a tax benefit.”

The ATO said the new alert, TA 2026/1, would soon be followed by a full-fledged draft practical compliance guide (PCG) that would outline the ATO’s compliance approach and provide more information on its criteria for high and low-risk arrangements.

Arrangements of concern included those where PDAs were used to artificially separate land ownership from development activities, repeatedly defer income recognition and accumulate project losses that could be used to obtain a tax benefit within the economic group.

These setups typically involved the creation of a shell developer entity interposed between the landowner and builder, and bound to the landowner through a PDA.

The Tax Office warned that these related party arrangements were being used to generate artificial losses in the developer entity, which were then used to offset other income within the economic group, resulting in little or no tax being paid.

“We are concerned that related parties undertaking these arrangements are, in substance, undertaking a single economic activity of property development, yet have artificially separated landownership and development activities to gain a tax advantage,” the taxpayer alert read.

The exploitation of these arrangements had enabled economic groups to perpetually defer paying tax on group profits and enable wealth extraction, the ATO noted. It said this behaviour enabled groups to gain a competitive advantage by “intentionally doing the wrong thing.”

The ATO said it would actively review arrangements that exhibited features of concern and engage with relevant taxpayers. It urged individuals aware they were involved in a contrived PDA to seek independent professional advice, or contact the Tax Office directly.

Those linked to property tax avoidance arrangements could incur serious penalties, the ATO warned. Promoters may face penalties under Division 290 of the Taxation Administration Act 1953, while registered tax agents involved in promoting these arrangements may be referred to the Tax Practitioners Board.

“Our aim is to ensure the consistent application of tax law and to deter the use of contrived structures that compromise the integrity of the tax system and disadvantage compliant taxpayers.”