Property development carried out by individuals is being increasingly viewed as being part of a business in court proceedings, with the ATO becoming more vigilant on the issue, an SMSF legal specialist has noted.
DBA Lawyers special counsel Bryce Figot said the increased scrutiny was highlighted in the recent case of RRKC and Commissioner of Taxation [2026] ARTA 95, which focused on the payment of goods and services tax (GST) and whether the sale of three residential units was part of a business.
The case, which was heard before the Administrative Review Tribunal on 28 January, involved a fruiterer who worked at two Melbourne markets, but also renovated and constructed residential property.
“There was a question about whether or not that [latter activity] was part of a business,” Figot said during a recent webinar.
“I will not surprise you when I tell you that it was part of a business. The taxpayer said it was not part of a business, but the taxpayer lost; it was part of a business.
“Now it’s not an SMSF decision per se. It’s a GST decision and there have been a lot of cases recently where these things are parts of businesses.
“The reason I mentioned that now in an SMSF update is because it is an important reminder for SMSFs that want to do property activities – development or buying and selling – particularly if they want to do them via Division 13.3A, also known as Regulation 13.22C, unit trusts.
“Those types of unit trust must not run a business or else the in-house asset exemption does not apply.
“I know people sometimes have these very optimistic views and: ‘I only set up the unit trust to buy this one property. How could I possibly be running a business?’ It’s certainly not the direction case law is going in.
“It’s very difficult for me to definitively say if it’s a business, but it’s a real risk and there’s more cases where taxpayers who say it is not a business are losing.
“There was also a recent ATO taxpayer alert [TA 2026/1] regarding contrived property development arrangements between related parties that defer recognition of income and exploit tax losses.
“It does not particularly involve SMSFs, but it’s a handy time to remember whenever you have an SMSF doing property development activities, they are always going to be on the ATO radar.”
