In an effort to let stakeholders know exactly how it and other government agencies are “taking action in response to evidence of increased manipulation of trusts as vehicles for tax avoidance or evasion”, the arm of Australia’s Tax Avoidance Taskforce dedicated to trusts has published its official roadmap for dealing with those structures that, in its words, “attract our attention”.
In a document posted on its website, the taskforce details exactly what it does, what types of arrangements tend to catch the eye of its agents, and what those in the business of using or overseeing trusts should and shouldn’t do to stay out of the taskforce’s and Australian Taxation Office’s crosshairs.
That many have fallen foul of these bodies is clear in the fact that over the past four years, since the Trusts Taskforce was established, it has raised more than A$948m in liabilities and collected more than A$279m. An additional A$55m has been “restrained under proceeds of crime legislation”, the taskforce says.
During this time it has also, among other achievements, finalised 56 audits and 848 reviews; achieved two convictions for serious tax fraud, and referred a further four matters to law enforcement agencies for criminal investigation; and issued three significant “taxpayer alerts”, with further related alerts being issued by the main Tax Avoidance Taskforce.
“We recognise that most trusts are used appropriately,” the TAT starts out by saying. “We will continue to help those who make genuine mistakes, or are uncertain about how the law applies to their circumstances.”
Admitting that it focuses “particularly on the privately-owned and wealthy groups market”, it lists the types of trust structures and behaviours that attract its attention as those where:
- 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 mis-characterised 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; and
- 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.