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RELATED ALERTS

It has come to light that questionable behaviour within trusts has been surprisingly common practice. As a result, the Australian Tax Office (ATO) will be taking a hard look at the goings-on within trusts both now and in the past. This ATO-trust showdown has been bubbling away for some time now, but the pot will boil over soon; it’s only a matter of time. As a result, financial advisors are scrambling to turn the heat down and get their affairs in line, or risk facing serious penalties.

The questionable behaviour the ATO is flagging is the unscrupulous avoidance of tax. Those manipulating trusts to their benefit now risk facing back dated bills and interest accumulated over years. Notably, financial advisors of said trusts are not immune to the ATO’s wrath; fines equating to potentially millions of dollars could be enforced under promoter penalty laws for advisors intentionally advising methods of tax-avoidance. One thing that still remains to be seen for those under the microscope is just how far back the ATO will be investigating.

While utilising trusts to minimise tax and protect assets is perfectly legal, avoiding tax is not. Although the ATO has announced they will be refining guidelines to more clearly define the types of practices that may be prosecuted, tax avoidance is already very distinctly in the ‘red zone’. 

One of the most prolific tactics of tax avoidance has appeared in family trusts. An example of the type of affairs that will be penalised is the transferring of funds to children, or beneficiaries in a low-to-no tax bracket, only to later return the money to their parents, who are likely in a much higher tax bracket. This practice has raised concerns for the ATO as it blatantly goes against the purpose of trusts; as the designated beneficiaries end up receiving little to no actual benefit. 

Similarly, money flowing back and forth between trusts and companies has been marked as unacceptable practice. In this method, funds end up returning to the trust in the form of dividends; potentially delaying or avoiding tax payable by individual beneficiaries.

Being honest and communicative is the best way to approach resolving issues with the ATO. Our friendly team are experienced in negotiating ATO fines, interest and penalties; sometimes avoiding them altogether. 

To get started, contact us here today!

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