ATO Case Decision

Case Decision Number:

CDS10330

Subject:

Does Part IVA (Income Tax Assessment Act 1936 (ITAA 1936)) apply to:

1)  an arrangement in which a taxpayer loans funds (interest free) from maturing investments to a discretionary trust formed by the taxpayer, and then invests the funds in the trustee’s name – (the income is distributed to immediate family members to minimise tax payable)?

2)  as above, but the taxpayer does not wait for the investments to mature; instead, assets are transferred to the trust immediately, to obtain the tax benefits earlier?

Decision:

1)  No.

2)  No.

Reasons for Decision:

1)  Merely investing funds, interest free, into a company or into a taxpayer’s own family trust does not, on the face of it, attract Part IVA (ITAA 1936).

2)   If the assets are divested purely and simply to the trust, Part IVA (ITAA 1936) will not apply here.

Legislative References:

Income Tax Assessment Act 1936 Part IVA

Relevant Cases:

DFC of T v Purcell (1920-1921) 29 CLR 464

Rulings/Determinations Cited:

Taxation Determination TD 95/4

Keywords:

Borrowings & loans

Dealings & transactions

Discretionary trusts

Entities & taxpayer groups

Franked dividends

Income

Interest waivers

Investment income

Part IVA

Tax avoidance

Tax planning

Tax planning, avoidance & evasion

Trusts

FOI Number:

I2000330