Complex trust structures are under renewed scrutiny as the tax office breathes new life into old anti-avoidance laws.
The $2.2 trillion trust sector is under growing scrutiny from the Australian Taxation Office amid concerns that as trusts become increasingly popular, they are being more blatantly used for tax manipulation by individuals and companies.
The ATO has recently launched two high-profile cases involving anti-avoidance measures under section 100A of the Tax Act using previously published rulings and statements about its application, according to tax specialists. Frank Hinoporos, head of tax at legal firm Hall and Wilcox, says this trust structure made it likely to land in the ATO’s “red zone”, which means it would be closely reviewed because of suspicions that it was intended to unlawfully reduce tax, or that an individual or entity other than the beneficiary was gaining advantage.
Mark Molesworth, a tax partner at global consultancy BDO, adds: “An adviser’s intention cannot be imputed to the client unless the client knows of that intention. That is contrary to the ATO’s recently finalised guidance.”He says: “Unfortunately there is no clear guidance available to trustees concerning the application of the anti-avoidance provisions to the discretionary distributions.
Trusts are popular with families wanting tax-effective structures to hold and manage their assets, including small businesses. They can be set up by a person or couple, who are usually the trustees, to hold assets for their children and other descendants.third high-profile case
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