Developers Warned as ATO Targets Project Structures

Property development agreements (PDAs) have long been a common structuring tool across Australia’s development industry.

But a new warning from the Australian Taxation Office (ATO) means developers may need to take a closer look at how those arrangements are implemented.

Brisbane-based accounting advisory firm M+H Private is urging property groups to review their structures following a taxpayer alert issued by the ATO in January 2026.

According to M+H Private director James Hoeft, the alert signals increased scrutiny from the tax authority and could lead to a rise in reviews and audits of property development structures.

“The ATO has effectively put these arrangements on its radar,” Hoeft said.

“We’re likely to see greater scrutiny of related-party property development structures, particularly where the landowner and developer entities are connected.”

What the ATO is watching

The ATO is concerned that PDAs are being used between related entities to defer the recognition of development income while allowing deductions to be claimed during the construction phase.

In such cases, development entities may generate tax losses during the build period, which can reduce the amount of tax ultimately payable.

However, Hoeft notes that PDAs have been used across the development sector for decades for entirely legitimate commercial reasons.

▲ M+H Private director James Hoeft said the alert “reads as something of a warning shot across the sector”.

Typically, the agreements allow landowners and developers to separate their roles during a project, often reflecting financing requirements, risk management strategies or joint venture arrangements.

“But the ATO’s concern arises where those roles appear blurred, particularly when the ultimate ownership of the entities involved is the same.”

The tax office has also flagged concerns about development entities that have limited employees, few physical assets and which outsource construction activities.

Yet Hoeft says those features are common in modern development models where specialist contractors, consultants and builders are engaged to deliver projects.

What developers should do

One of the most significant aspects of the ATO’s alert is its reliance on Australia’s general anti-avoidance provisions.

Under these rules, the ATO may cancel deductions, bring forward income recognition and impose penalties if it determines that a structure was established primarily for tax avoidance.

“The taxpayer alert reads as something of a warning shot across the sector,” Hoeft said.

“It indicates the ATO is prepared to challenge arrangements where it believes the tax outcomes don’t align with the commercial substance.”

▲ The warnings come despite PDAs being well-recognised and commonly used across the industry.

While the alert does not automatically invalidate existing PDA structures or signal an immediate ATO investigation, Hoeft said developers should take steps to ensure their arrangements can withstand scrutiny.

“The key issue is demonstrating that the structure reflects commercial reality rather than a tax-driven arrangement,” Hoeft said. 

To do this, developers should ensure the commercial rationale for their structure is clearly documented, including why separate development entities were established and how risks and responsibilities are allocated.
 
It is also important that development agreements reflect arm’s-length commercial terms, with supportable development fees or profit-sharing arrangements.

“Equally critical is that the actual conduct of the parties matches the documentation,” Hoeft said.

“If an entity is described as the developer, it should genuinely be performing the development role and bearing the relevant risks.”

Ultimately, the ATO will look beyond the legal form of an arrangement to assess the substance of what is occurring.

Getting ahead of ATO scrutiny

Seeking early advice can make a significant difference for developers navigating increasingly complex tax compliance requirements.

Specialist advisers such as M+H Private work closely with property groups to review development structures, document commercial rationale and ensure arrangements are robust if challenged by the tax office.

“With the ATO signalling increased scrutiny, it’s important developers review their arrangements sooner rather than later,” Hoeft said.

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