ATO Warns on Contrived Property Development Structures: What Developers and Landowners Need to Know
The Australian Taxation Office has recently issued Taxpayer Alert TA 2026/1, placing a spotlight on certain property development arrangements between related parties that the ATO considers high-risk and potentially non-compliant.
The Alert is particularly relevant to developers, landowners, family groups and private entities who use special purpose vehicles, development agreements or long-term construction contracts as part of their project structuring.
What Arrangements Are Under Scrutiny?
According to the ATO, the arrangements of concern typically involve:
a landowning entity and a related developer entity under common control;
the interposition of a special purpose developer between the landowner and the builder;
a Property Development Agreement using a long-term construction contract spanning multiple income years; and
contractual terms that defer the developer’s income recognition until project completion, while allowing progressive deductions for development costs, creating tax losses in the interim.
In substance, the ATO considers these arrangements to artificially separate landownership and development activities that are, economically, a single property development enterprise.
Why the ATO Is Concerned
The Alert makes clear that the ATO is concerned these structures may be deliberately designed to:
defer recognition of development profits;
generate artificial tax losses within the developer entity;
use those losses to offset other income within the broader economic group; and
in some cases, enable minimal or no tax to be paid indefinitely, despite significant wealth creation.
The ATO has expressly flagged the potential application of Part IVA (general anti-avoidance rules) to these arrangements and confirmed it is actively reviewing existing structures and preparing further compliance guidance.
Why This Matters for Property Developers
For developers and landowners, the consequences of getting this wrong can be significant:
income may be re-characterised and taxed earlier than expected;
losses may be denied;
penalties and interest may apply; and
existing development agreements may need to be unwound or restructured mid-project.
Importantly, many of these arrangements appear commercially orthodox on their face, particularly where development agreements and SPVs are common industry tools. The ATO’s focus is not on the labels used, but on the commercial substance, risk allocation and timing of income recognition.
How Specialist Property Lawyers Add Value
At McCarthy Durie Lawyers, we regularly assist clients with the legal structuring and documentation of property development projects — working closely with accountants and tax advisers to ensure that structures are:
commercially defensible;
legally robust;
properly documented at arm’s length; and
aligned with both property law principles and tax compliance expectations.
Our role is not to provide tax advice, but to ensure that development agreements, land arrangements, funding structures and risk allocations accurately reflect the commercial reality of the project, rather than creating unintended exposure under integrity provisions such as Part IVA.
Early legal input at the structuring stage often makes the difference between a development model that withstands regulatory scrutiny and one that becomes costly to unwind.
Thinking About a Property Development or Restructuring an Existing Project?
If you are proposing a property development involving related parties, special purpose entities or development agreements — or if you already have a structure in place and are concerned about ATO scrutiny — we can assist.
