Related-party property development
A common arrangement: a family owns land personally and owns a private company, and the company manages building on that land — say, two units. Because the same people stand behind both, it is tempting to treat them as one. They are not. The ATO treats the owners and the company as separate legal entities, so the deal must be run at arm's length. This factsheet explains who claims the GST, the two compliant invoicing models, the documents to put in place, and includes an interactive GST recovery calculator.
English & Chinese PDF versions of this factsheet are available on request — please contact us.
* General information only. Kristy Pan & Co. provides this material for general knowledge; it does not constitute tax or financial advice and does not take account of your specific circumstances. This information is current as at 10 June 2026; we will do our best to update it when any policy or legislation changes. Please contact us before acting.
The arrangement & why the ATO looks closely
Picture the common scenario. Individuals — call them the owners — hold a parcel of land in their own names. The same people also own the company, a related private company that will manage the construction of two units on that land. Materials are ordered, subcontractors are engaged, money moves back and forth. Because one family stands behind everything, it feels like money shuffling within a single household.
It isn't. For tax purposes, the owners and the company are separate legal entities, and the arrangement between them must be run at arm's length — that is, on the same commercial terms two unrelated parties would agree to. Treat it casually and three problems follow:
Lost GST credits
If the wrong entity claims the GST on construction, the ATO can deny those input tax credits — turning recoverable GST into a real, sunk cost.
A Division 7A dividend
Where company money pays for an asset the owners hold privately, Division 7A can treat the spend as a deemed dividend taxed in the owners' hands.
Denied deductions
Costs recorded in the wrong entity, or not supported by genuine arm's-length agreements, can have their deductions challenged on review.
Same people, two taxpayers.
The single most useful habit is to stop thinking of the owners and the company as “us”. They file separate returns, hold separate assets, and deal with each other as a customer deals with a builder. Every flow of money or value between them should be backed by an agreement, an invoice, and a clear answer to one question: would unrelated parties have done it this way?
Who claims the GST
Only the entity that receives the supply and is liable to pay for it can claim the input tax credits on it. Because it is the owners who own the land being improved, generally it is the owners — registered for GST under their own ABN (for example as a partnership) — who must claim the GST on the construction costs, not the company. There are two compliant ways to route the invoicing.
Model A — Agency model
Subcontractors invoice “the owners C/- the company”. The company pays those invoices as the owners' agent, the owners reimburse it, and the owners — being GST-registered — claim the input tax credits. The company never owns the costs; it is simply handling payment on the owners' behalf, supported by an agency agreement.
Model B — Head-contract model
The company signs a contract to build for the owners for an agreed price plus GST. Subcontractors invoice the company; the company claims those credits, then on-charges the owners on its own invoice (price + GST); the owners claim the input tax credit on the company's invoice. This route requires the company to hold the appropriate builder's registration or licence in the relevant state — without it, the company can breach state building law.
Letting the company claim GST on land it doesn't own.
The tempting shortcut is to run everything through the company and let it claim all the GST. The trouble is that the ATO matches GST claims against land titles: if the company is claiming credits to improve a property the owners hold, the mismatch is an obvious red flag and the credits can be denied. Worse, if the company funds construction on the owners' private asset without a proper agreement and reimbursement, that spend can be a Division 7A deemed dividend. Match the GST to the title, and document the rest.
Documents & the ongoing process
An arm's-length arrangement is only as good as the paperwork behind it. Before construction starts, put the right structure in writing; through the build, keep the entities and their money cleanly apart.
What to put in place
A project management agreement setting an arm's-length management fee plus GST, invoiced each quarter. An agency or loan agreement to govern how the company funds and is reimbursed for costs. The owners' own ABN and GST registration. Separate bank accounts, so company money and project money never mix. And correct invoicing throughout, consistent with whichever model you have chosen.
Through the build & at sale
Both entities lodge a quarterly BAS. Keep permits and insurances current — builder's licence, public liability, and home-building compensation cover. Importantly, consider the GST margin scheme on the eventual sale, which can reduce the GST payable — but it must be agreed in the sale contract before it is signed. Two further traps deserve early attention: the ATO may treat the development profit as ordinary income (fully taxed) rather than a discountable capital gain; and transferring the land into the company can trigger a second round of stamp duty.
The margin scheme can't be added later.
The margin scheme is one of the few levers that can materially cut the GST on the finished units — but it must be chosen and recorded in the contract of sale before that contract is signed. It cannot be bolted on afterwards. The same “decide first” discipline applies to whether the land should move into the company at all, given the stamp-duty cost. Plan these at the start, not at settlement.
GST recovery calculator
See how much GST is embedded in your construction bills, and what is at stake if the structure is wrong. When the owners are correctly GST-registered and the invoicing is right, that embedded GST is recoverable; get it wrong and it becomes an unrecoverable cost.
GST recovery explorer
$550,000 of construction, $50,000 of GST
The owners expect to spend $550,000 on construction, GST included. About $50,000 of that — one-eleventh — is GST. Register the owners correctly and route the invoicing through a compliant model, and that $50,000 is recoverable through the BAS. Leave the owners unregistered, or let the wrong entity claim, and the same $50,000 simply becomes part of the build cost — gone for good.
This calculator is a simplified illustration only. It assumes every construction cost carries GST and that the development is correctly structured to claim the credits. Your recoverable amount depends on the actual mix of taxable supplies and the structure in place. We confirm the position for your project.
How we help
We set up the owners' ABN and GST registration, design the inter-entity invoicing so the right party claims the GST, draft the agency, loan and project management agreements, and lodge the BAS for both entities. We also advise on the GST margin scheme on sale and on keeping the company clear of Division 7A — so the structure is right before the first invoice is paid.
Glossary of terms
- Input tax credit
- The GST a registered business can claim back on its purchases, where it holds a valid tax invoice and uses the purchase in its enterprise. Often abbreviated ITC.
- GST registration
- Registering an entity for goods and services tax (GST) under its own ABN. Only a registered entity that receives a supply can claim the GST on it.
- Margin scheme
- An optional way to work out the GST on the sale of certain property — broadly on the margin rather than the full price — which can reduce GST payable. It must be agreed in the contract before it is signed.
- Division 7A
- Rules that can treat money or assets a private company provides to its shareholders or their associates — including paying for their private assets — as a deemed unfranked dividend.
- Arm's length
- Dealing on the same commercial terms that genuinely unrelated parties would agree to, even where the parties are in fact related.
- Project management agreement
- A written agreement under which the company manages the construction for the owners for an arm's-length fee plus GST, invoiced periodically.
- Head contract
- A building contract under which the company agrees to build for the owners for a price plus GST, then engages and pays the subcontractors itself. It generally requires the company to hold a builder's licence.
- ABN
- Australian Business Number — the identifier an entity needs to register for GST, issue tax invoices and lodge a BAS.
This factsheet contains general information only, summarised from the ATO's guidance on GST and property and the related-party rules. The calculator is a simplified illustration and not a substitute for a precise calculation. This material does not take into account your circumstances and is not advice. Please consult Kristy Pan & Co. about your situation before acting.