This week the Australian Taxation Office (ATO) issued a warning to developers who are falsely representing developments to minimise tax.
The ATO said several hundred developers – both commercial and residential – were under investigation and it hoped to claw back some $200 million in lost tax revenue.
The ATO believes developers are claiming new properties are solely for rent – meaning a 50 per cent capital gains tax concession – when in reality the properties are being sold and the developer is duping the ATO out of the tax from the income.
The alert issued by the ATO said that signs developers may be falsely trying to gain a tax concession included finance arrangements that indicated the property was to be sold within a certain time, or communication to councils with sales plans.
In relation to agents, the ATO said: “Real estate agents may be engaged early in the development process, and advertising to the general public may indicate that the dwellings/subdivided blocks of land are available to be purchased well in advance of the project’s completion, including sales off the plan.”
The issue was recently reported on in the Fairfax press, where an ATO spokesperson told its Business Day section: “The exact scale of these arrangements is difficult to quantify, but the amount of revenue receipts that we believe to have been mischaracterised as capital gains involved in recent and current cases is $40 million in underpaid tax.”
The spokesperson revealed that several hundred developers were under investigation and would subsequently be audited, with any wrongdoers facing potentially hefty penalties – as much as 75 per cent of the amount of tax avoided.
The report said developers would be shown some leniency if they voluntarily came forward to the ATO.
However, there is no suggestion real estate agents could be found culpable or fined if they had been involved in the sale of the properties.