The ‘Paper Developer’ Structure the ATO Loves to Audit
TA 2026/1 – What Property Developers Need to Know
If you’re using related companies in a property development structure, the ATO may already be reviewing your project. The Australian Taxation Office has begun actively auditing common “paper developer” arrangements across the property development industry.
The ATO has released Taxpayer Alert TA 2026/1, focusing on property development tax structures that use related entities to delay income recognition and create tax losses.
This Alert is specifically aimed at property developers who separate land ownership and development activities into different companies under the same control, particularly where the “developer” entity has little real commercial substance and exists primarily to claim deductions.
What the ATO is saying — in simple terms
If a structure is used mainly to generate tax losses and push tax liabilities into the future, the ATO will look through the paperwork and treat the arrangement as one single property development business.
In an ATO audit of property developers, legal form alone will not protect you if the commercial reality does not support the structure.
What types of structures are being targeted?
The ATO is closely reviewing related-party development structures where:
One related entity owns the land
Another related “developer” entity is inserted between the landowner and the builder
The developer entity claims construction costs year after year
Income is deliberately delayed until the end of the project
The developer has no real staff, capability, or decision-making authority and outsources everything
Losses are used to offset other income within the group
The same structure is repeated across multiple property development projects
While these arrangements may appear compliant on paper, the ATO considers that many are established primarily to avoid paying tax, rather than for genuine commercial reasons.
Why this structure is high-risk in an ATO audit
The ATO has made it clear that it will apply anti-avoidance provisions under Part IVA where appropriate. This may allow the ATO to:
Cancel previously claimed tax losses
Amend prior-year tax returns
Recalculate income as if the landowner directly conducted the development
Impose penalties and interest
Investigate advisers who designed or promoted the structure
This is now a serious compliance focus, and ATO audits of property developers are already underway.
What property developers should do now
If your project involves related companies, it is critical to review:
Whether the developer entity genuinely runs and controls the project
Whether income is being recognised appropriately during the construction phase
Whether there is a clear and defensible commercial rationale for the structure
Whether tax losses have been used to reduce other group income
Early review is essential. Fixing structural issues after an ATO audit has commenced is significantly more expensive, disruptive, and stressful.
How ZT Partners protects property developers
ZT Partners are property development specialists, with deep experience in property development tax, ATO audits, and Part IVA risk.
We work with developers from start to finish to:
Design compliant and commercially sound development structures
Identify ATO risk areas early
Review related-party arrangements before problems arise
Minimize exposure to Part IVA
Protect profits and long-term wealth
Property development is already complex — you don’t need hidden tax risks sitting inside your structure.
If you’re currently developing, or planning a new project, now is the time to review your structure before the ATO does.
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