Taxation Ruling

IT 2059E

Trust stripping : pre-part IVA assessing guidelines

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FOI status:

Edited for FOI purposesFOI number: I 1115143

PREAMBLE

This ruling should be read in conjunction with Head Office memorandum J209/103 of 16 July 1982 regarding trust stripping schemes entered into prior to 27 May 1981. This ruling supersedes the assessing guidelines given in that memorandum (copy attached).

FACTS

2. Trust stripping refers to tax avoidance arrangements under which an entity associated with a promoter is purportedly introduced as a beneficiary of a trust which has derived income during the year. The income of the trust is allegedly distributed to that promoter entity. As part of this contrivance the trust or an associate is reimbursed in an ostensibly non-taxable form.

RULING

3. It is accepted that the opinion on trust stripping from and of counsel dated 29 June 1983 and forwarded to Branch Offices under Head Office memorandum J209/103 of 12 July 1983 or 14 July 1983 provides a general basis for the assessment of participants in trust stripping schemes entered into prior to 27 May 1981. The thrust of counsel's advice is that such schemes may be challenged on the grounds of sham and, alternatively, that paragraph 26(a) operates where a profit has arisen under the scheme to a member or nominee of the taxpayer group. It is notable that, although the primary basis of assessment recommended by counsel relies on sham the parties to be assessed will generally be the same parties who would have been assessable in accordance with paragraph 14 of the memorandum of 16 July 1982 on the basis that section 260 applied.

4. Assessments in relation to trust stripping schemes entered into prior to 27 May 1981 should now be raised as soon as possible in accordance with counsel's advice. That is, assessments should be raised against persons or entities presently entitled to trust income on the basis that the scheme transactions are shams and also against parties who appear to have derived a paragraph 26(a) profit under the scheme in accordance with the reasoning of counsel. The arrangements suggested in paragraph 22 of the memorandum of 16 July 1982 for the simultaneous issue of assessments need not be made.

5. Where pre-assessment enquiries are necessary, for example to ascertain the identity of beneficiaries, those enquiries should be made as a matter of urgency.

6. Any problems that may be encountered in raising assessments should be referred, in the first instance, to or.

COMMISSIONER OF TAXATION
21 September 1983

References

ATO references:
NO J209/103 P8 F164
BO Melbourne : VJ192/20
Sydney : 27/B13/AF.4064/1/2
Parramatta : A 48/5/18 Pt 3
Adelaide : M336/4/71
Brisbane : 5/IT/COR 67H
Hobart : G3/H 32/1/12
Perth : J36/243/1
Canberra : 04/GTA4/11

Related Rulings/Determinations:

IT 2059
IT 2059W
IT 2059 (Archival Notice)

Subject References:
TAX AVOIDANCE
TRUST STRIPPING

Legislative References:
26(a)