ATO closely watching property developers who cheat the system

We have a watchful eye on company directors with a history of non-compliance as part of our increased focus on people involved in property development.

Non-compliant property developers claim input tax credits over the life of the development and then seek to avoid paying GST when they sell by failing to lodge their activity statement and individual tax return.

Deputy Commissioner James O'Halloran said 'rather than look at the property development business, we're looking at the people who control the business. If they've got a history of avoiding their GST obligations, we'll be watching their activities closely.'

'Our aim is to engage directly with developers earlier in the property life cycle and where necessary they will be required to provide a security bond deposit against projected future tax liabilities, or we will issue a garnishee order.

'In the most serious cases we are seeing developers create a new company for each development and subsequently close that company down to avoid meeting tax obligations. This leads to an uncollectible debt due to movement of assets. Our approach will be firm and could result in interest, penalties or even prosecution, on top of meeting their tax liability.

'The renewed focus has been enabled by the extra funding received as part of the GST voluntary compliance program. It will make a real difference in changing the compliance behaviour of some of these individuals, who unfairly play the system to their advantage.

'Early detection and action is crucial with this group as the risk of uncollectible debt due to movement of assets and effective insolvency increases if we wait until after settlement.'

Data matching

We collect and analyse a range of third party information - including data from state and territory revenue offices and land title offices - to detect taxpayers who are not correctly reporting their GST on property transactions. Second Commissioner Bruce Quigley talks about our data matching capabilities in a recently released YouTube video.

Early detection at work

In one recent case, a company with two directors had links to seven insolvent entities and more than $2.5 million in debt write-off. They have since registered a new entity and started a new property development. The new entity also tried to claim more than $500,000 in GST credits in the early stages of the development, some of which were refused as the entity could not substantiate the legitimacy of the claims.

At the same time we issued a Security Bond Demand (under Subdivision 255-D of the Tax Administration Act 1953) which required the entity to provide a funds guarantee before the sales of the property development were due. In this particular case early engagement with the directors secured more than $400,000 in future GST claims. The entity will also be required to substantiate their claim to these GST credits.

    Last modified: 22 Nov 2012QC 28311