Late on Friday the 22nd the ATO announced that it is reviewing arrangements involving accountants, lawyers and other professionals operating through partnerships of discretionary trusts. It did so by issuing Taxpayer Alert TA 2013/3: Purported alienation of income through discretionary trust partners.
As members would be aware, Taxpayer Alerts are the ATO’s early warning of significant new and emerging higher risk tax planning issues.
Importantly, the ATO acknowledges that professional practices may legitimately operate as a partnership of discretionary trusts, however, the focus is on the misuse of these structures to avoid tax.
The ATO is concerned that the structures may result in an individual purporting to alienate income attributable to their professional services to a trustee partner.
In some cases the arrangement may:
- be ineffective in alienating the individual's income,
- have CGT consequences for the individual which have not been correctly recognised, or
- involve a scheme to which the income tax general anti-avoidance rules apply.
Further detail about the arrangements that are concerning the ATO can be accessed.
The Tax Institute, as a member of the ATO’s Professional Practice Structures Working Group, is actively involved in working with the ATO on this issue. Our president, Steve Westaway CTA, met with the Working Group this week to discuss the many matters arising. The nature and extent of the ATO’s concerns as expressed in the Taxpayer Alert are still being worked through.
In conjunction with the Working Group, the ATO is developing further guidance and reviewing relevant Rulings and Determinations, including IT 2540, which addresses the CGT consequences of disposing of an interest in a partnership. This includes the preparation of a publication to help professionals understand the risks and how to address them in practice.
We will keep members informed of developments.
Robert Jeremenko CTA is Senior Tax Counsel of The Tax Institute.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.