12 August 2013
Media release 2013/19
The ATO is warning anyone with a trust fund to avoid considerable tax debts, penalties and prosecution by making sure they aren’t making an easily identifiable attempt to avoid tax.
The practice, which is even publicly marketed by some tax advisers, tries to exploit mismatches between trust and taxable income.
“Most taxpayers and their advisers are correctly taxing trust income but we are unfortunately seeing more instances where some are trying to avoid or substantially reduce tax,” ATO A/Second Commissioner Mark Konza said.
“We are concerned that these arrangements may have been marketed to taxpayers on the basis that they are legitimate tax planning strategies.”
The practice creates a deliberate mismatch between amounts beneficiaries are entitled to receive from a trust and the amounts they are taxed on.
“Trust distributions are made in such a way that one beneficiary receives the funds generated from a capital gain, tax free, whilst another beneficiary, a company, receives the tax liability attached to that capital gain,” said Mr Konza.
“The company can't pay its tax liability, as they didn’t actually receive the funds from the capital gain, and winding-up proceedings are commenced.
“As we can see, these arrangements try to send the funds tax-free to one beneficiary, and the tax liability to another beneficiary - without any funds.
“We have systems in place that can detect these types of practices and warn anyone who may be involved to come forward now before they are contacted by us.”
Come forward with an early disclosure to avoid higher penalties
Anyone who has participated in these arrangements, and makes a voluntary disclosure before they are contacted by the ATO, will be entitled to a reduction in penalties.
They should visit the ATO website or call the ATO on 1800 177 066.
Taxpayers unsure of their situation should seek professional advice or contact the ATO on 13 28 61.
If you have information on specific people or entities involved in such arrangements you should call 1800 060 062.
For more specific information about this arrangement, Taxpayer Alert 2013/1 is available from the ATO website ato.gov.au/atp.
Those wanting to know more about the ‘proportionate approach’ and differences between the income of a trust under trust law and taxation law may wish to refer to the following ATO publications:
Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning arrangements that the ATO has under risk assessment.
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