Recently the Australian Taxation Office (ATO) has increased its focus on businesses that are operating under a trust structure and as part of their business are undertaking property development activities. In some instances these business have been claiming a 50 % Capital Gains Tax (CGT) discount when the properties are sold.

The ATO’s primary concern in situations regarding the sale of property is whether the trust has:

  • Purchased the property as part of their business of property development or
  • Purchased the property with a profit making intention

If either of the above situations are evident, the proceeds from the sale should be assessed as ordinary income and not as a capital gain. Therefore the trust would NOT be eligible for the 50% CGT discount.

ATO’s Trusts Taskforce has reviewed numerous trusts of which 75% of the cases have been reviewed for audit. Furthermore there are a number of businesses that have made voluntary disclosures of their previously understated tax liability. The ATO as part of their focus will continue to target arrangements that display the following characteristics:

  • clients have experience in either developing or selling property (or experience in the industry) and establish a new trust to acquire property for development and sale
  • circumstances surrounding the arrangement are inconsistent with the stated purpose of developing the property as a long term investment
  • the development is advertised as available to purchase before completion or is sold soon after completion
  • the trustee claims the 50% capital gains tax discount on the sale of the property.

The ATO encourages anyone who is concerned that they may have engaged in a similar arrangement as described above to seek independent professional advice. It may be deemed necessary to amend previous tax returns to avoid penalties or minimise the severity of the penalties imposed.

Here at The Quinn Group our tax lawyers and tax accountants are able to assist with a review of all your CGT obligations as well assisting in submitting any voluntary disclosures to the ATO. If you wish to discuss your situation please contact us at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.