Recently the Australian Tax Office issued a warning against the use of trusts to return the proceeds from property developments as capital gains. Property development activities are generally considered an enterprise, requiring income resulting from these activities to be declared as business income.

Declaring proceeds from property development as capital gains through a trust allows beneficiaries to claim the general 50% discount on this income, resulting in only half of the profit from the development being taxed. Using trusts in this was constitutes an exploitation of the system to the tune of millions of dollars. Deputy commissioner Tim Dyce said that the taxation office has already raised millions in adjustments and expects to make many more in the coming months.

Such an exploitation can have very serious and expensive consequences for taxpayers and, even if the conduct was accidental, could leave you paying penalties of up to 75% of the tax avoided if it’s found that you have been using trusts to mis-characterise the proceeds of property developments.

Tim Dyce says that: “Property developers should return the income from developments to ensure they are complying with the law.”

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