The ATO on Mon 12.8.2013, issued Taxpayer Alert TA 2013/1 warning taxpayers against artificial arrangements where a deliberate mismatch is created between the amounts beneficiaries are entitled to receive from a trust and the amounts they are actually taxed on.
Broadly, the ATO said the arrangement concerns a situation where a trust has generated a small amount of income and a large capital gain during the year. It said the trust distributions are then made in such a way that one beneficiary receives the fund generated from the capital gain, tax free, whilst the other beneficiary (being a newly incorporated company) receives the tax liability attached to that gain. According to the ATO, the newly incorporate company receives no funds from the capital gain to pay this tax liability, and is wound up to avoid payment of tax on the large taxable capital gain.
The ATO said it is concerned that arrangements of this type may be a sham and may constitute a scheme to which the general anti-avoidance rules in Pt IVA of the ITAA 1936 may apply. In addition, it noted that any entity involved in the arrangement as a promoter may be subject to Div 290 of Sch 1 to the TAA.
[FJM Note: If such things were happening, they would stand little chance of being effective under Part IVA, and thus those who constructed the transactions have every chance of being a “*promoter” of a “*tax exploitation scheme” within the meaning of s290-50(1) of the Taxation Administration Act 1953, Schedule 1 – thus exposing them to civil penalties up to 25,000 penalty units if the promoter/firm is a company (and 5,000 penalty units for any individual involved). If greater, the penalty could be up to twice the consideration received for promoting the scheme.]
[LTN 154, 12/8/13]