The Australian Taxation Office (ATO) has issued its first Taxpayer Alert for 2026 (TA 2026/1), signalling increased scrutiny of property development arrangements between related parties that appear “contrived” to defer income recognition and exploit tax losses.
This aligns with the ATO’s continued focus on the property and construction sector, as highlighted in its recent key focus areas for privately owned and wealthy groups.
Why this matters now
Property Development Agreements (PDAs) are widely used in the industry and, when structured correctly, serve legitimate commercial purposes. However, the ATO’s concern lies with arrangements that appear designed primarily to obtain a tax benefit rather than reflect genuine development activity.
This isn’t the first time PDAs have attracted attention. In Victoria, for example, stamp duty applies to transactions involving an economic interest in land, which can result in duty being payable on PDAs that might otherwise have escaped liability. The latest alert signals that the ATO is similarly aware that these structures can result in beneficial income tax outcomes.
What is the ATO concerned about?
The ATO has outlined several characteristics that raise red flags. These include:
- A developer entity inserted between related parties without clear commercial justification.
- No assessable income recognised until project completion, despite significant costs incurred.
- Limited evidence of the developer’s capability or financial capacity to undertake development.
- Structures generating substantial tax losses used to offset unrelated group income.
- Arrangements enabling repeated tax deferral and potential wealth extraction.
In the ATO’s view, these features indicate a dominant purpose of obtaining a tax benefit, which in the ATO’s view may bring these arrangements within the scope of Part IVA.
The alert also includes a diagram of a typical long-term construction contract arrangement under review, illustrating how these structures can create opportunities for contrived tax outcomes.
Diagram source: Australian Taxation Office, Taxpayer Alert TA 2026/1 (Licensed under CC BY 4.0).
What happens next?
The ATO is actively reviewing arrangements that exhibit these characteristics and will engage with identified taxpayers. In addition, a draft Practical Compliance Guideline (PCG) will be released shortly. This PCG will set out the ATO’s risk framework, including indicators of low-risk and high-risk arrangements, providing taxpayers with clearer guidance on how their structures will be assessed.
What should taxpayers do now?
If you are involved in or considering related-party PDAs, we recommend:
- Reviewing the commercial rationale behind your structure to ensure it reflects genuine business purpose.
- Documenting developer activity and capability, including financial capacity and operational involvement.
- Preparing for potential Part IVA scrutiny, particularly where tax benefits could be perceived as the dominant purpose.
- Seeking advice before entering new arrangements to avoid inadvertently creating high-risk structures.
- Consider engaging proactively with the ATO through their ‘commercial deals program’ where clarification is needed, especially for complex or long-term projects.
How we can help
We combine deep technical expertise with commercial insight to help you navigate this evolving landscape. Our team can:
- Review and validate the commercial substance of your arrangements.
- Support documentation of genuine developer activity.
- Guide the design of new structures to minimise risk.
- Assist with ATO engagement and clarify positions where needed.
While the forthcoming draft PCG will offer further practical guidance, taking proactive steps now can help protect your position and reduce the risk of costly disputes.
This article was co-authored by Amy Martin.