Whether you’re subdividing land, building to sell, or flipping houses, property development in Australia comes with strict tax and GST obligations. The Australian Taxation Office (ATO) treats developers differently from investors — and misunderstanding this difference can lead to costly mistakes.
In this guide, we’ll break down how the ATO views property developers, what taxes apply, and what you need to know to stay compliant.
Property Developer vs Property Investor
The ATO treats property developers and investors differently — and it affects how you’re taxed.
Property developers buy, build, or renovate with the intention of selling for profit. Their activities are considered a business, so profits are taxed as income, and GST often applies. There’s no access to the 50% Capital Gains Tax (CGT) discount.
Property investors, on the other hand, hold property to earn rental income or long-term capital growth. They’re generally taxed under CGT rules, and GST usually doesn’t apply.
Even one development project can make the ATO view you as a developer — your intention to profit is key.
Key Tax Obligations for Property Developers
Once you’re classified as a property developer, several tax rules come into play:
Income Tax
If you’re undertaking property development with the intention to sell for profit, the ATO will typically treat any earnings as ordinary income, not a capital gain. This classification means you are not eligible for the 50% Capital Gains Tax (CGT) discount, which is available to investors who hold assets for at least 12 months. Instead, your profits will be taxed at your individual or company tax rate, depending on your business structure. This approach applies even to one-off projects if the ATO determines that your intent was to develop and sell for profit. It’s important to note that the ATO assesses each case based on the activity’s scale, repetition, and business-like manner — not just whether it’s your full-time job.
GST (Goods and Services Tax)
If you’re developing property to sell — especially new residential premises — you may be required to register for GST with the ATO. Once registered, you’re generally obligated to charge 10% GST on the sale price of the developed property. This applies whether you’re selling a new home, subdivided land, or multi-unit dwellings.
The upside is that GST registration also allows you to claim GST credits on your development-related expenses. These include costs like construction services, architectural and legal fees, engineering, and marketing. However, GST compliance can be complex, and errors in reporting or failing to register can result in penalties. It’s crucial to maintain clear records of all transactions and expenses and ensure GST is properly applied to both your inputs and sales.
Understanding the Margin Scheme
The Margin Scheme allows developers to reduce the amount of GST payable on certain property sales. Rather than applying GST to the full sale price, it’s calculated on the margin — the difference between the sale price and the original purchase price of the land.
However, the Margin Scheme can’t be applied automatically. It’s only available under specific conditions and often requires agreements in writing between the buyer and seller.
Subdividing and Developing Land
Even if you’re just subdividing and selling land once, the ATO may still treat you as running an enterprise, especially if your intention was to profit from the sale.
Common signs the ATO may look for:
- You registered for GST.
- You engaged contractors or consultants.
- You prepared the land for sale (e.g. roads, services).
- The development was carried out in a business-like manner.
Record-Keeping and BAS Lodgement
As a registered developer for GST, you’ll need to:
- Lodge Business Activity Statements (BAS) regularly.
- Report all income and GST collected on property sales.
- Maintain clear records of expenses, contracts, and GST credits claimed.
The ATO expects developers to maintain professional records, especially when claiming GST credits or using the Margin Scheme.
Seek Professional Advice
Property development tax can quickly become complex, especially when you’re dealing with large-scale projects, multiple entities, or changing regulations. That’s why it’s important to have the right guidance from the start. A qualified tax advisor can help you correctly classify your activity, structure your business for tax efficiency, and manage your BAS and GST obligations — all while helping you stay compliant and avoid costly ATO penalties or audits.
At Chan & Naylor, we specialise in property tax and development structures. Our experienced team can provide clear, strategic advice tailored to your situation. Get in touch with us today to ensure you’re building on a solid foundation.
About Chan & Naylor
Established in 1990, Chan & Naylor has been a trusted partner for thousands of businesses and property investors across Australia. Based in Sydney, we provide expert accounting services tailored to your needs. Choosing Chan & Naylor means you’re not just selecting a service provider; you’re gaining a partner aligned with your business goals. You’ll have access to a dedicated client manager supported by a team of accountants that specialises in business tax and investments. Contact us today so we can discuss how we can help you.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
