Income tax is usually the single largest cost between a developer’s headline margin and the cash that actually funds the next deal, yet most feasibility models stop at the pre-tax profit. This guide takes the far more common tax outcome for a developer, that your profit is ordinary income, and works through what it costs: the rate by structure, when the tax falls due, what you can deduct, how a loss is treated, and where the tax lands in your feasibility.
How is property development profit taxed in Australia?
Development profit is taxed as ordinary income on your net profit, at the tax rate of whoever owns the project. For most developers the profit sits on revenue account, taxed like any trading profit, so the Capital Gains Tax (CGT) concessions that reward long-term investors do not apply. The rate can run from 25% in a company through to 47% for an individual on the top marginal rate, and the number that matters for your next deal is the after-tax profit, not the headline margin.
The Australian Taxation Office (ATO) is explicit on the point. Its guidance on the tax consequences on sales of property states that property sales, including subdivided land, that are part of a property development business are treated as ordinary income, and that it is only the net profit you make from a profit-making undertaking that is assessable. That single fact drives almost everything below: the rate you pay, when you pay it, what you can deduct, and how a loss is treated.
This guide is the practical companion to the characterisation question. Whether your profit is income or capital is decided by a separate test, covered in Capital Gains Tax on property development. Here we take the common answer, that your profit is ordinary income, and work through the mechanics. None of this is tax advice; the treatment turns on your facts, so use it to frame the questions you take to your accountant.
Why is development profit ordinary income and not a capital gain?
Because you are selling what you built, not realising an investment you held. When you acquire a site to develop and sell, the land is generally trading stock, and the profit on sale is ordinary income under section 6-5 of the Income Tax Assessment Act 1997. This is the same basis on which a manufacturer is taxed on the goods it sells. Section 70-10 of the Act defines trading stock to include anything held for sale in the ordinary course of a business, and the Australian Taxation Office (ATO) accepts that land acquired for subdivision, development and resale falls within it, so that even a single acquisition for development and sale can be enough.
The consequence that catches developers out is the loss of the concessions that only exist on capital account. Where property is held as trading stock, the Australian Taxation Office (ATO) guidance on how the difference affects your tax confirms the Capital Gains Tax (CGT) provisions do not apply, so the Capital Gains Tax (CGT) discount, the small business concessions and the main residence exemption are all off the table for that profit. A developer who models a deal on a discounted capital rate is usually modelling a concession they will never claim.
That comparison is now shifting, because the capital-account concessions are themselves being overhauled. The 2026-27 Federal Budget announced that the 50% Capital Gains Tax (CGT) discount for individuals and trusts will be replaced, for gains accruing from 1 July 2027, with a cost-base indexation method and a 30% minimum tax on real capital gains, with assets already held grandfathered and a concession for investors in new builds. For a build-to-sell developer on revenue account this changes nothing directly, because your profit was never a capital gain to begin with. But it changes the calculus: the old argument that revenue-account treatment costs you a halved tax bill is much weaker once the capital-account alternative is indexation plus a minimum tax rather than a flat 50% discount. The measure is now law, taking effect from 1 July 2027, though the detail of how it applies is still bedding down, which makes it one to watch closely if any part of your project sits on, or near, capital account.
There is a genuine capital-account case, mainly build-to-hold, and there is a grey zone for one-off subdivisions and long-held land, and the shift in the capital-account regime makes getting that line right more important, not less. The full set of factors the Australian Taxation Office (ATO) weighs, drawn from Taxation Ruling TR 92/3 on profits from isolated transactions, how the overhaul reshapes the capital-account strategy, and the planning move for landowners who already hold a site, are covered in the Capital Gains Tax guide. For the rest of this guide, we assume the common answer: your development profit is ordinary income.
What tax rate applies to development profit?
The rate depends entirely on the entity that owns the project, because income tax is charged on the taxpayer, not on the deal. The table below sets out the rate on development profit for the 2026-27 income year; the sections under it explain each one.
| Entity | Rate on development profit (2026-27) |
|---|---|
| Company (base rate entity) | 25% flat |
| Company (standard) | 30% flat |
| Individual or sole trader | Marginal, up to 47% (45% plus 2% Medicare levy) |
| Partnership | Each partner taxed at their own rate on their share |
| Discretionary trust | Flows to beneficiaries at their rates; accumulated income taxed to the trustee at 47% |
| Complying super fund | 15% (a specialised case with strict rules) |
Company: 25% or 30%
A development company pays a flat rate, either 25% or 30%. The Australian Taxation Office (ATO) company tax rates set 25% for a base rate entity, broadly a company with aggregated turnover under $50 million and no more than 80% of its income being passive (such as interest, rent or dividends), and 30% otherwise. Development income is active business income, so a development company under the $50 million turnover threshold generally pays 25%.
The flat rate is the appeal: it is low, certain, and easy to model. The trade-offs are that a company never accesses the Capital Gains Tax (CGT) concessions available to individuals and trusts, which only matters if you were ever going to be on capital account, and that profits taken out as dividends are taxed again in the shareholder’s hands, with franking credits for the tax the company has already paid. For a pure build-to-sell developer who is on revenue account anyway, the lost discount costs nothing, which is part of why the company is a common development vehicle.
There is also a reinvestment angle that matters to a developer building a pipeline. Profit retained in a company is taxed once at 25% or 30% and can then be redeployed into the next site without a second layer of tax until it is paid out to shareholders. An individual or a trust distributing to individuals generally pays the full personal rate in the year the profit is derived, leaving less to roll into the next deal. So the company can win on a build-to-sell pipeline for a cashflow reason, quite apart from the discount it never uses.
Individual or sole trader: marginal rates up to 47%
An individual pays their marginal rate on the profit, and it stacks on top of their other income. The Australian Taxation Office (ATO) resident tax rates for 2026-27 are nil to $18,200, 15% from $18,201 to $45,000, 30% to $135,000, 37% to $190,000, and 45% above that, plus the 2% Medicare levy. The 15% second bracket dropped from 16% on 1 July 2026 and is legislated to fall again to 14% from 1 July 2027, but those cuts touch the lower brackets, not the top rate that most development profit hits.
For a developer already earning a salary, most or all of the development profit is likely to fall in the top bracket, so an effective 47% is a realistic planning assumption. That is the highest rate of any structure, which is why relatively few developers of any scale hold projects in their own name.
Trust: flows through to the beneficiaries
A discretionary (family) trust is not usually a taxpayer in its own right. The net income flows out to the beneficiaries, who are taxed at their own rates, which is what makes the trust attractive: profit can be streamed to beneficiaries on lower rates. Two cautions apply. Income the trustee accumulates rather than distributes is taxed to the trustee at the top marginal rate under section 99A of the Income Tax Assessment Act 1936, currently 47% with the Medicare levy. And from 1 July 2028, the 2026-27 Federal Budget has announced a minimum tax of 30% on the income of discretionary trusts, with some exclusions and rollover relief for restructures, which may narrow the streaming benefit for higher-income family groups. That is an announced measure rather than settled law, so confirm the position before you rely on it.
Partnership and joint venture
A partnership lodges a return but does not pay tax; each partner brings their share of the profit into their own return and pays at their own rate. Many developments are structured as unincorporated joint ventures, or as a partnership of trusts or companies, so the effective rate is really the blended rate of the entities behind it. How the profit is split before it is taxed in a multi-party deal is its own exercise, covered in profit distribution and the equity waterfall.
A complying superannuation fund is taxed at 15%, the lowest rate available, but developing inside a fund runs into the sole purpose test, the in-house asset rules and borrowing restrictions, so it is a specialised path rather than a general option, and most developers should treat it as one to raise with an adviser rather than assume.
How much tax on a $1 million development profit?
On a $1 million pre-tax development profit, the tax can range from about $250,000 in a base rate company to around $470,000 for an individual on the top rate. Same profit, a swing of roughly $220,000, purely on structure.
| Owner of the project | Rate | Tax on $1m profit | Kept after tax |
|---|---|---|---|
| Base rate company | 25% | $250,000 | $750,000 |
| Standard company | 30% | $300,000 | $700,000 |
| Individual (only income) | Marginal | about $436,000 | about $564,000 |
| Individual (on top of other top-bracket income) | 47% | up to $470,000 | from $530,000 |
| Discretionary trust | Depends on beneficiaries | $250,000 to $470,000 | $530,000 to $750,000 |
Treat these as illustrative. The individual figure depends on the person’s other income; the trust figure depends entirely on who receives the distribution and at what rate. The point is not the exact dollar, it is that the structure decision, made before you exchange, can move your after-tax profit by a fifth or more of the gain. This is why structuring is a feasibility question, not a year-end accounting one, and why it is generally worth advice before contracts are signed rather than after.
When is the tax on development profit actually payable?
The tax is generally due as the profit is derived, which for a developer usually means as lots settle, not when the building is finished on paper. On revenue account the profit is brought to account through the trading stock rules: land and construction costs sit in stock, and profit is recognised as each lot sells. For a staged project that settles lots across two or three income years, the tax is spread across those years too, which can be an advantage where it keeps an individual out of the top bracket in any single year.
A short example shows the effect. A nine-lot project finishes construction in one income year but settles four lots before 30 June and the remaining five after. The profit on the first four lots is derived and taxed in the first year, even though the project is not complete, while the profit on the last five falls into the next year. For an individual, that split can keep part of the profit out of the top bracket in each year; for a company on a flat rate it changes the timing but not the rate. Either way, the tax is a moving cash outflow across the settlement window rather than a single hit at practical completion, and a model that lands it all in one period will misread the cashflow.
Two timing points matter for cashflow. First, Pay As You Go (PAYG) instalments: once you have reported business income, the Australian Taxation Office (ATO) generally requires quarterly Pay As You Go (PAYG) instalments toward the current year’s tax, due around 28 days after each quarter, so tax on a profitable settlement run can be called well before the annual return. Second, a tax liability can arrive with no cash behind it: because profit is recognised on settlement, you can owe tax on a year’s settlements while the cash has already gone to repay the financier or into the next site.
The Australian Taxation Office (ATO) is paying close attention to how and when development profit is returned, particularly in longer-dated development agreements, an area it has flagged under its property and construction compliance focus. The practical habit is to set the expected tax aside as each lot settles, and to model the tax as a cash outflow in the period it actually falls due, rather than as a single line at the end of the project.
What can you deduct against development income?
Almost everything it genuinely costs to produce the profit, either as part of trading stock or as a deduction when incurred. The taxable profit is the net figure, sale proceeds less the cost of what you sold and the expenses of running the project, not the gross sale price.
Land and construction sit in trading stock and are matched against the sale as each lot settles, so they reduce the profit when the lot sells rather than when you pay for them. Interest and other finance costs, council rates and land tax incurred while the land is trading stock are generally deductible in the year incurred, as ordinary business expenses, rather than being capitalised into a cost base as they would be on capital account. Professional fees for planning, design, legal work and project management are generally deductible or form part of the project cost.
Goods and Services Tax (GST) is a separate system and does not sit inside the income tax profit. If you are registered, you account for GST separately, and the income tax profit is worked out on GST-exclusive figures. Because a profit-making development is typically also an enterprise, registration is usually in play, and how GST lands on a deal is covered in the GST on property development guide.
The full cost stack that feeds this calculation, from land through finance to contingency, is set out in total development cost. Getting the deductible costs right is what turns a gross sales figure into the net profit the tax is actually charged on, and understating them is a common way a feasibility flatters the after-tax result.
A simplified build-up shows how the top line becomes the number the tax is charged on. Take a small townhouse project selling for $4,000,000 excluding GST. Subtract the land, construction, professional fees, finance and holding costs that produced it, say $3,300,000 of deductible project cost in total, and the taxable profit is $700,000. It is that $700,000, not the $4,000,000 top line, that the rate applies to: in a base rate company at 25% the tax may be about $175,000, leaving $525,000, while for an individual on the top rate it could be up to around $329,000, leaving $371,000. The wider point for a feasibility is that the accuracy of your cost lines drives your tax bill as directly as your sale prices do, so a $200,000 understatement of cost overstates both your profit and the tax you need to set aside for it.
Is there any tax on a development loss?
No. There is no tax on a loss, and a revenue-account loss is generally more useful than a capital loss because it can shelter other income rather than only future capital gains. This is the flip side of ordinary-income treatment, and it usually works in the developer’s favour, though how you use the loss depends on the entity.
For an individual or sole trader, a revenue loss can generally be offset against your other assessable income in the same year, subject to the non-commercial loss rules, where a capital loss could only ever offset a capital gain. For a company, a tax loss can be carried forward and used in a later year, subject to the continuity of ownership or business continuity tests; and from 2026-27 the 2026-27 Federal Budget has reintroduced loss carry back, letting a company with aggregated turnover under $1 billion carry a current-year revenue loss back against tax paid in the prior two years for a refund, limited by its franking account balance. For a trust, losses are generally trapped in the trust and carried forward rather than distributed to beneficiaries, and using them later depends on the trust loss rules, which is one reason a loss-making project in a trust can be less useful than the same loss in a company or in an individual’s hands.
For feasibility, the takeaway is that the downside case is not taxed, so your after-tax sensitivity is asymmetric. Tax can take a quarter to nearly half of the upside, but the state does not share the downside beyond letting you carry or apply the loss elsewhere. That asymmetry is worth building into a downside scenario rather than assuming a symmetric tax effect on either side of break-even.
Does income tax on development profit vary by state?
No. Income tax is a Commonwealth tax, so the rate and the rules are identical whether your site is in New South Wales, Victoria, Queensland, South Australia, Western Australia, Tasmania, the Australian Capital Territory or the Northern Territory. The trading-stock-versus-capital question is decided under the same federal law wherever you build, which is why this guide does not run a state-by-state table for income tax.
What does vary by state are the other taxes that sit alongside income tax on the same deal: stamp (transfer) duty on acquisition, land tax while you hold, and payroll tax, each set by the state or territory and several carrying foreign purchaser or absentee owner surcharges. These can be material costs, and on revenue account the holding costs among them are generally deductible as incurred. Duty in particular is worth modelling for the specific state using the relevant stamp duty calculator for your jurisdiction. So the income tax is uniform across the country, but your total tax cost on a deal is not.
How is development profit taxed in New Zealand?
Much the same way in principle: development profit is ordinary income taxed at your entity’s rate, and there is no Capital Gains Tax (CGT) discount to lose because New Zealand has no general capital gains tax at all. The catch for developers is a set of land taxing provisions that bring most development and subdivision profit to tax regardless of how long the land was held.
Under subpart CB of the Income Tax Act 2007 (NZ), land sold as part of a development or division, or by a person in the business of dealing in, developing or building on land, is taxed as income. Two provisions catch typical developers: profit on land where a scheme of development or subdivision involving more than minor work was begun within 10 years of acquisition, and profit from development or division work that is not minor. New Zealand’s Inland Revenue Department (IRD) sets out how these apply in its guide to tax and your property transactions (IR361). The two-year bright-line test sits over the top for residential land, but for a genuine developer the development provisions usually bite first and the holding period is beside the point. The developer-specific rules, including how the developer label can taint associated parties, are covered in the New Zealand bright-line and developer tax guide.
Two further points catch New Zealand developers. The associated-persons rules can pull in parties connected to a developer or builder, so land held by an associate may be taxed on sale even where that associate is not itself developing, which makes who holds what a live structuring question rather than an afterthought. And GST runs alongside the income tax much as it does in Australia, though the New Zealand rate is 15% rather than 10%; a developer registered for GST accounts for it separately from the income tax on the profit.
On the rates for the 2025-26 year, a company pays 28%, an individual pays New Zealand marginal rates up to 39% on income over $180,000, and a trustee is taxed at 39%, aligned with the top personal rate since 1 April 2024. As in Australia, there is no tax on a loss, and a revenue loss can generally be used against other income subject to the loss rules.
Where does income tax hit your feasibility?
Below the line, on the after-tax profit and the after-tax return, which is the number that actually funds equity and repays investors. A feasibility that stops at pre-tax margin overstates what the deal delivers, potentially by a quarter to nearly half of the profit depending on the structure that owns it.
Two habits keep a model honest. Model the profit as ordinary income at the rate of the entity that will own the project, not at a discounted capital rate you are unlikely to access. And treat the tax as a cash outflow in the period it falls due, so the after-tax cashflow, the internal rate of return (IRR) and the equity return reflect when the Australian Taxation Office (ATO) is actually paid, rather than an average applied at the end.
This is where a feasibility tool earns its place: apply the income tax rate of the owning entity to the pre-tax profit, and carry no tax where the project makes a loss, which matches how the rule actually works. In a tool like Feasly you can run the after-tax numbers and use sensitivity analysis to see how the effective tax rate moves the residual land value and the margin, rather than discovering the difference after settlement. The distinction between margin on cost and margin on revenue, and why the after-tax version of each is the honest one, is covered in margin on cost versus revenue.
Frequently asked questions
Do property developers pay income tax or Capital Gains Tax (CGT)?
Almost always income tax. Development profit is ordinary income on revenue account. Capital Gains Tax (CGT) generally only enters the picture where you genuinely hold the finished asset as an investment, as in build-to-hold, or where a sale is a true mere realisation of long-held land. Which side of the line you fall on is decided on the facts of your project, weighing your purpose, your conduct and the scale of the works.
Can I use the 50% Capital Gains Tax (CGT) discount on a development?
Generally no. Capital gains concessions apply on capital account; trading stock and profit-making undertakings are on revenue account, so they do not apply to that profit. Note too that the 50% discount itself is being replaced for individuals and trusts from 1 July 2027 with a cost-base indexation method and a 30% minimum tax on capital gains, so even the capital-account benefit you are forgoing is changing. The Capital Gains Tax guide covers the new regime.
Does my first ever project count as taxable income?
Yes. A one-off development can be a profit-making undertaking with the net profit taxed as ordinary income, even if you are not carrying on a business. Being a first-timer does not convert the profit into a discounted capital gain.
Is the development profit taxed on the sale price or on the profit?
On the net profit. That is your sale proceeds less the cost of the land and construction you sold and the deductible costs of running the project. Goods and Services Tax (GST), if you are registered, is accounted for separately and does not sit in the income tax profit.
Do I pay income tax and GST on the same sale?
They are separate systems applying to the same transaction. GST is charged on the sale, often via the margin scheme, while income tax is charged on the net profit. Registering for one does not change how the other applies, and you work each out on its own basis.
The bottom line for developers
Build your feasibility on the assumption that your development profit is ordinary income, taxed at the rate of the entity that owns the deal, with the after-tax figure as your real return. Decide the structure before you exchange, because a company at 25% and an individual at 47% are a difference of around $220,000 on a $1 million profit. Set the tax aside as lots settle, take some comfort that the downside is not taxed, and get the characterisation and the structure confirmed with your accountant before you commit. Get those right early, and the rest of the model can be built on numbers that survive contact with your tax return.