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Closely-Held Trusts Brought Into Australian Tax Administration Net

Wednesday, February 10, 2010

Australia’s Assistant Treasurer, Nick Sherry, has released for public consultation the government's draft legislation extending the Australian Taxation Office (ATO) tax file number (TFN) withholding arrangements to closely held trusts, including family trusts.

"This important measure will improve the fairness and integrity of the tax law by shedding light on income derived from certain types of trusts," Nick Sherry said. "Income streams from closely held trusts, by their very nature, can be problematic for the ATO to assess.”

In the late 1990’s, it became apparent that complex chains of trusts were being used in Australia to avoid or indefinitely defer tax. In order to address this issue, legislation was passed to require a trustee of a closely held trust to advise the ATO of certain details about a trust’s ultimate beneficiaries and tax-preferred distributions to beneficiaries.

It was found, however, that that measure proved to be very difficult to comply with for some trustees of closely held trusts. Consequently, from 2008-09, new rules applied requiring that the trustee of a closely held trust report information to the ATO in respect of each beneficiary that is itself a trustee entitled to a share of the trust’s net income or to receive tax-preferred amounts.

These new reporting requirements do not apply in respect of individuals or companies, or to family trusts that have made a family trust election under the trust loss provisions. Consequently, as part of the 2009-10 budget, the government announced that, with effect from July 1, 2010, it would extend the current TFN withholding arrangements to closely held trusts, including family trusts.

The effect of this change will be to allow the ATO to better align the information obtained from trustees with the amounts reported by the trust’s beneficiaries. Additionally, this measure will allow the ATO to check whether the assessable income of beneficiaries of these trusts correctly includes their share of the net income of the trust.

"This budget measure,” the Assistant Treasurer continued, “targets high-wealth individuals utilising these types of trusts and is expected to result in a AUD150m (USD130m) boost to revenue over four years."

He said that the draft legislation follows an extensive community and sector consultation held over recent months and incorporates feedback arising from a range of submissions. Sherry emphasized that, “as a result of these consultations, trustee beneficiaries where the parent trust is subject to the trustee beneficiary reporting rules will be excluded from the measure."

An additional change prompted by the consultation process is also that “the quarterly requirements for trustees to report and remit amounts withheld will be removed and will be replaced with a simpler annual reporting and remittance framework – an important red-tape reduction."

"These changes will make it easier for trustees to meet their tax obligations while ensuring the measure retains its integrity and targets those who under-report or fail to report their distributions," he added.

The government has called for submissions on the draft legislation by February 19, 2010.

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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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