The government tax office funded Tax Avoidance Taskforce identified in a detailed update statement a number of cases of aggressive tax planning and tax evasion using trust structures, including:
- trafficking in losses through the use of trusts
- active exploitation of the lack of transparency associated with trusts
- trusts distributing income to chains of trusts (some sharing the same corporate trustee), but where the beneficiaries fail to lodge income tax returns reporting that income
- documents being falsified to gain a concession or benefit
It also revealed over A$948m in liabilities had so far been issued as a result of its efforts to date.
Eight arrangements attract attention
The Australian Government announced in the 2013–14 Budget, that it would provide funding over four years for a multi-agency taskforce. This taskforce would take compliance action against taxpayers involved in tax avoidance or evasion using trusts.
From 1 July 2017, the work has continued under the operational umbrella of the ‘Tax Avoidance Taskforce’.
In the update, the taskforce spells out eight specific arrangements that “attract its attention” including:
- 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 or low tax jurisdictions
- agreements with no apparent commercial basis that direct income entitlements to a low-tax beneficiary while the benefits are enjoyed by others
- there are artificial adjustments to trust income, so that tax outcomes do not reflect the economic substance – for example, where parties receive substantial benefits from a trust while the tax liabilities corresponding to the benefit are attributed elsewhere or where the full tax liability is passed to entities without any capacity or intention to pay
- revenue activities are mischaracterised to achieve concessional capital gains tax treatment – for example, by using special purpose trusts in an attempt to re-characterise mining or property development income as discountable capital gains
- changes have been made to trust deeds or other constituent documents to achieve a tax planning benefit, with such changes not credibly explicable for other reasons
- transactions have excessively complex features or sham characteristics, such as round robin circulation of income among trusts
- new trust arrangements have materialised that involve taxpayers or promoters linked to previous non-compliance – for example, people connected to liquidated entities that had unpaid tax debts.
