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ATO Issues Warning On Contrived Trust Arrangements

Thursday, November 17, 2016

The Australian Taxation Office (ATO) has issued a Taxpayer Alert warning against the use of arrangements that seek to minimize tax by creating artificial differences between the taxable net income and distributable income of closely held trusts.

The ATO said it is currently investigating arrangements where trustees are engineering a reduction in trust income to improperly gain favorable tax breaks or, in some cases, pay no tax at all. The ATO identified these arrangements through ongoing monitoring and reviews by the Trust Taskforce.

Deputy Commissioner Michael Cranston explained: "Unfortunately we have seen some trustees enter into arrangements that create contrived differences between the trust net income and distributable income. These trustees exploit the differences to have the net income assessed to individuals and businesses that pay little or no tax, and allow others to enjoy the economic benefit of the net income free-of-tax."

He added that 10 of the cases involve lost revenue of more than AUD40m (USD29.9m) "and go far beyond legitimate tax planning, raising a number of red flags."

The Trusts Taskforce was established in 2013 to undertake targeted compliance action against those involved in tax avoidance or evasion using trusts. To date it has raised AUD772m in liabilities and collected AUD164.5m. Assets worth AUD55m have been restrained under proceeds of crime legislation.