ATO Alert Targets Company Loans
Monday, March 7, 2011
The Australian Tax Office (ATO) has recently released a Taxpayer Alert warning taxpayers of arrangements involving loans to members of a company limited by guarantee (LBG company) and the operation of Division 7A of the Income Tax Assessment Act 1936 (ITAA36).
Under these arrangements a LBG company is established to receive income distributions from a trust and then lend that money to directors, members or associates of that company or related parties. Minimal or no interest or principal is paid on the loans, however the Commissioner has stated that the Tax Office is concerned that some people are utilizing these arrangements to obtain income from their trusts without having to pay the required amount of tax.
The alert applies to arrangements with features substantially equivalent to
- A company limited by guarantee (the LBG company) is set up and becomes a
beneficiary or an object of a trust (the Trust);
- The Trust distributes net income to beneficiaries including the LBG company.
The distribution to the LBG company may have franking credits attached;
- The LBG company pays tax on the distributions at the company tax rate (30%);
- The LBG company makes loans to directors, members or associates of the LBG
company or related parties to the directors, members or associates (the borrower);
- The borrower does not include the value of the loans in their assessable
income in the year in which they are received;
- The borrower pays minimal or no interest to the LBG in relation to these
- Aside from the perceived beneficial tax treatment, there is little or no
commercial reason for the establishment of a limited by guarantee company.
The Tax Office has indicated that anyone who has participated in such arrangements should come forward prior to April 30, 2011 before they are contacted, and that if they do so, there may be reductions in any penalties imposed by the Tax Office.
BVI Financial Firms Need To Develop New Niches
BVI Finance, the financial services industry promotional agency, has said the industry must actively adapt to target new opportunities and promote new offerings internationally.
ADGM Revises Pooled Fund Capital Req's
Abu Dhabi Global Market, the low-tax international financial center, has revised the capital requirements applicable to managers of collective investment funds, with effect from April 10, 2017.
ADGM Consults On Allowing REITs
Abu Dhabi Global Market, the low-tax international financial center, is consulting stakeholders on plans to allow the establishment of private real estate investment trusts.
Gibraltar To Offer Foundations
Gibraltar's Parliament recently passed a bill permitting the establishment of Private Foundations.
Gibraltar Acts To Preserve QROPS Status
Gibraltar has made new pension regulations to maintain its attractiveness as a jurisdiction from which to transfer UK pensions.
Australia Consults On Taxation Of Stapled Structures
The Australian Treasury has launched a consultation on the tax consequences of the re-characterization of trading income derived through the use of stapled structures.
Australian DPT Legislation Passes Senate
The Australian Senate has passed legislation to introduce a diverted profits tax from July 1, 2017.
Guernsey Funds Sector Grew In 2016
The total value of funds business in Guernsey grew by more than GBP28bn (USD32.5bn) last year.
New Zealand Explains Foreign Trust Disclosure Changes
New Zealand has published guidance on the increased disclosure requirements for foreign trusts with New Zealand-resident trustees.
Canadian Budget Focuses On 'Tax Fairness'
The tax measures contained in Canadian Finance Minister Bill Morneau's second Budget are focused on closing loopholes, cracking down on tax evasion and improving tax reliefs for the "middle class."
Jersey Regulator Issues AML/CTF Funds Guidance
Jersey's financial services regulator, the Jersey Financial Services Commission, has issued new anti-money laundering and countering the financing of terrorism guidance for Funds and Fund Operators.
More Tax Hikes For UK Taxpayers In 2017 Budget
The UK Budget, released on March 9, 2017, featured tax measures to, among other things, hike taxes on self-employed workers, further close avenues for legal avoidance, and defer mandatory digital tax reporting until April 2019.
ACOSS Submits Recommendations For Australian Budget
The Australian Council of Social Services has urged that the Government abolish ineffective tax concessions, introduce a sugary drinks tax, and scrap its company tax proposals.
MEPs Call For Wider Access To Beneficial Ownership Data
EU citizens would be able to view information in registers of beneficial ownership without having to demonstrate a "legitimate interest," under proposed amendments the Anti-Money Laundering Directive.
New Zealand Tax Changes Enter Into Force
A Bill including provisions to simplify New Zealand's tax processes, reduce compliance costs for smaller businesses, and tighten foreign trust disclosure rules received Royal Assent on February 21.