Improper use of trusts by property developers

The ATO has issued TA 2014/1 which describes arrangements where property developers use trusts to return the proceeds from property development as capital gains instead of income on revenue account. ATO Deputy Commissioner Tim Dyce said the ATO has “begun auditing property developers who are carrying out activities which conflict with their stated purpose of capital investment”. He said a “growing number of property developers are using trusts to suggest a development is a capital asset to generate rental income and claim the 50 per cent capital gains discount”. Mr Dyce warned that penalties of up to 75 per cent of the tax avoided can apply to those found to be deliberately using special purpose trusts to mischaracterise the proceeds of property development.