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ATO trusts taskforce targets

In the 2013 Federal Budget, the Government announced that it will provide $67.9 million over 4 years to the Tax Office to undertake compliance activity in relation to trust structures.

The taskforce will target the exploitation of trusts to conceal income, mischaracterise transactions, artificially reduce trust income amounts and underpay tax. It will focus on taxpayers who have been “involved in egregious tax avoidance and evasion” involving trusts.

Compliance activity will target “known tax scheme designers, promoters, individuals and businesses who participate in such arrangements”.

The measure is estimated to increase revenue by $379 million over the forward estimates period.

The Tax Office has now also released further details on what factors will attract its attention. This article will discuss those factors.

Lisa Lynch and Jane Tu, Thomson Reuters

The ATO has released further information on the potential targets of its 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 have received substantial benefits from a trust while the tax liabilities corresponding to that benefit have been attributed elsewhere (for example, by 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 CGT treatment (for example, 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 constitutional 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; and
  • new trust arrangements have materialised that involve taxpayers and/or promoters who have histories of or connection to previous non-compliance (for example, people connected to liquidated entities that had unpaid tax debts).

According to the ATO, the taskforce is intended to target higher risk taxpayers and not ordinary trust arrangements and tax planning associated with genuine business or family dealings. However, it said those taxpayers that are unsure regarding their arrangements can seek a private binding ruling, or contact the ATO via the trusts taskforce at TrustRisk@ato.gov.au (mark all information "in confidence") to discuss the arrangement. Alternatively, the ATO said voluntary disclosures can be provided if taxpayers need to adjust a tax position that had previously been taken with the Voluntary disclosures - approved form.

Source: These articles were first published in Thomson Reuters' Weekly Tax Bulletin and Tax & Accounting Insight. To subscribe to Weekly Tax Bulletin or Tax & Accounting Insight, or for more information, please:

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Lawyer in Profile

Leigh Baring
Leigh Baring
Partner
PH: 61 3 9258 3673

Leigh is a partner in the Maddocks Tax & Revenue team.

Leigh regularly provides advice on:

  • structuring of businesses and transactions;
  • mergers and acquisitions;
  • corporate reorganisations and distributions;
  • sale of businesses;
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  • succession planning; and
  • liquidations.

His advice covers both direct and indirect tax considerations.

Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.