ATO cracks down on developer tax evasion

Penalties of up to 75 per cent of the tax avoided can apply to those found to be deliberately misusing special purpose trusts

The Australian Taxation Office (ATO) has issued a warning to property developers misusing special-purpose trusts to claim unwarranted discounts.

“We have begun auditing property developers who are carrying out activities which conflict with their stated purpose of capital investment,” says ATO deputy commissioner Tim Dyce.

The warning states that several hundred commercial and residential developers are using trusts to return the proceeds from property developments as capital gains instead of rental income, in order to be eligible for a 50 per cent discount.

A Tax Office spokesman told Fairfax's Business Day that the agency was looking to claw back up to $200 million in revenue from devious developers wrongly claiming the concession.

“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," says Mr Dyce.

“Property developers should return the income from developments to ensure they are complying with the law."

Penalties of up to 75 per cent of the tax avoided can apply to those found to be deliberately misusing special purpose trusts. Agents have been warned to look out for dodgy developers falsely representing developments to minimise tax.

The Taxpayer Alert says that signs developers may be falsely trying to gain a tax concession included finance arrangements that stipulates the property should be sold within a certain timeframe, or communication to councils with sales plans.

Developers who voluntarily come forward to the ATO will be shown some leniency. Information on amending a tax return or activity statement can be found on the ATO website.