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 the following:
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.