Australia’s tax authority has issued a new warning to property developers over contrived related-party arrangements that artificially defer income and exploit tax losses, signalling increased scrutiny of long-term development structures within economic groups.
The Australian Taxation Office (ATO) issued a taxpayer alert on 14 January 2026 cautioning property developers against contrived arrangements involving related parties that may raise compliance concerns.
The alert, TA 2026/1, addresses contrived property development arrangements between related parties that defer recognition of income and exploit tax losses. It informs taxpayers and their advisers of the concerns about certain related-party property development arrangements involving long-term construction contracts (i.e., property development agreements spanning more than one income year) that artificially defer recognition of income.
The use of property development agreements (PDAs) is very common in Australia’s property and construction sector. Generally, there is no concern with this operating model. However, the ATO are concerned about situations where related parties structure PDAs in an artificial or contrived manner to obtain a tax benefit.
Under these arrangements there is:
- An interposed developer entity to artificially separate the land ownership and development activities;
- repeated deferral of income recognition;
- the accumulation of project losses that are used in the economic group to obtain the tax benefit.
The exploitation of losses in these arrangements can:
- Result in the economic group perpetually deferring paying tax on group profits;
- enable wealth extraction.
The economic group gains a competitive advantage by intentionally doing the wrong thing.
ATO’s new taxpayer alert provides an example of the typical arrangement that will attract attention. If anyone is currently involved in, or considering entering into, an arrangement like this, ATO encourages them to seek independent professional advice.
