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ATO Updates Discretionary Trust Partnerships Guide

Wednesday, September 3, 2014

The Australian Taxation Office (ATO) has released draft guidelines on how professionals can assess the tax risks from the use of partnerships of discretionary trusts and similar structures.

The ATO is reviewing the remuneration arrangements used by accountants, lawyers, and other professions to make sure that such structures are being used appropriately. The ATO says that in some cases they may be used in ways that give rise to different tax consequences and result in tax compliance risks.

According to Deputy Commissioner Michael Cranston, "the draft guidelines set out what we consider to be low risk, legally effective arrangements, and what we consider to be high-risk arrangements that might attract our attention."

The document explains how the ATO will assess the potential application of Part IVA (the general anti-avoidance rule) of the Income Tax Assessment Act 1936 to the allocation of profits from a professional firm carried on through a partnership, trust, or company, where the income of the firm is not personal services income.

In particular, the ATO is concerned that Part IVA may apply to schemes that are designed to ensure that an individual professional practitioner (IPP) is either not directly rewarded for the services they provide to the business, or that they receive a reward that is substantially less than the value of those services.

Where an IPP attempts to alienate amounts of income flowing from their "personal exertion" (as opposed to income generated by the business structure), the ATO may consider cancelling relevant tax benefits under Part IVA.

The general anti-avoidance provisions have historically been applied to assess individuals on income generated by their personal exertion or application of their professional skills, rather than profits or income generated by a business structure. However, the ATO says that Part IVA also has potential application where an IPP arranges for the distribution of business profits or income to associates without regard to the value of the services the IPP has provided to the business.

The guidelines are being issued as a working draft for ongoing public consultation. They will apply to relevant arrangements within professional firms, including, but not limited to, those providing services to the accounting, architectural, engineering, financial services, legal, and medical sectors. The guidelines will apply from the 2014-15 income tax year.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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