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ATO taskforce to target trust structures

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In the 2013–2014 Budget, it was announced that the government will provide $67.9 million over four years to the ATO to undertake compliance activity in relation to trust structures. The ATO has released further information on the potential targets of this compliance action utilising its intelligence systems, including new tax return labels. It said some of the factors that will attract its attention include arrangements where:

  • trusts or their beneficiaries who have received substantial income are not registered, or have not lodged tax returns or activity statements;

  • there are offshore dealings involving secrecy jurisdictions;

  • agreements with no commercial basis appear to be in place so as to direct income entitlements to a low-tax beneficiary while the benefits are enjoyed by others;

  • there is artificial characterisation of amounts, such that tax outcomes do not reflect the economic substance, with the result that some parties receive substantial benefits from a trust while the tax liabilities corresponding to that benefit are attributed elsewhere (eg by trustees making resolutions that artificially reduce trust income in attempts to direct minimal present entitlement but full tax liability to entities with no capacity or intention of paying);

  • there has been mischaracterisation of revenue activities to achieve concessional capital gains tax (CGT) treatment (eg by using special purpose trusts to attempt to re-characterise mining or property development as discountable capital gains);

  • changes have been made to trust deeds or other constituent documents to achieve a tax planning benefit, and are not credibly explainable for other reasons;

  • transactions have excessively complex features or sham characteristics, such as round robin circulation of income among trusts; or

  • new trust arrangements have materialised that involve taxpayers and/or promoters who have histories of or connections to previous non-compliance (eg people connected to liquidated entities that have had unpaid tax debts).

According to the ATO, the taskforce is intended to target higher-risk taxpayers, and not ordinary trust arrangements or tax planning associated with genuine business or family dealings. However, it says those taxpayers who are unsure about their arrangements can seek a private binding ruling, or email the ATO trusts taskforce at TrustRisk@ato.gov.au (mark all information as “in confidence”) to discuss the arrangement. Alternatively, the ATO says voluntary disclosures can be provided with the Voluntary disclosures – approved form (available on the ATO website at www.ato.gov.au/content.asp?doc=/content/00131776.htm)  if taxpayers need to adjust a tax position that has previously been taken.

Source: ATO, “Trusts Taskforce”, 21 May 2013, www.ato.gov.au/businesses/content.aspx?doc=/content/00353969.htm.

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