The Australian Taxation Office has signalled its intent to target property developers using trust structures to declare development profits as capital gains. The Tax Office has advised in Taxpayer Alert 2014/1 that it has already commenced a number of audits and made adjustments to increase the net income of several trusts.

The Tax Office is specifically focusing on arrangements with some or all of the following characteristics:

1. An entity with experience in developing or selling property establishes a new trust for the purpose of acquiring property for development and sale.

2. The activities undertaken by the trust indicate that the property acquired is not a capital asset for example:

  • Finance applications indicate significant development activity being undertaken by the trust for the purpose of re-sale of individual lots or dwellings;
  • Development approvals lodged with council show a clear intent of development activity;
  • Real estate agents and marketers are involved with significant sales campaigns for sale of individual lots or dwellings;

3. The property is sold soon after completion.

4. The trustee treats the sale on capital account and claims the general 50% capital gains tax discount rather than treating the net profits as a development profit which would be fully taxable.

Next Steps

For those with significant investments and/or undertakings in the property industry who are treating any of their gains as capital we would recommend they review their arrangements to ensure their treatment is consistent with the Income Tax Laws.

Should you be concerned or want to review your arrangements please contact your Pilot adviser on (07) 3023 1300.