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  • Taxpayer Alert – Re-characterisation of income from trading businesses

    A recent taxpayer alert advised that we are reviewing arrangements attempting to fragment integrated trading businesses. This fragmentation attempts to re-characterise trading income into more favourably taxed passive income, resulting in a reduction of the overall rate of tax applicable to the business. These arrangements have the potential to erode the corporate tax base.

    A particular area of concern is stapled structures.

    While stapled structures are one mechanism we see regularly being adopted in these arrangements, our concerns exist even if the entities are not stapled.

    What we are doing

    We are engaging more closely with taxpayers who have proposed these arrangements to explore the issues of concern, and ensure any restructuring arrangements do not seek to avoid the payment of corporate tax.

    Taxpayers and advisors who implement these types of arrangements will be subject to increased scrutiny and we have released a taxpayer alert outlining our concerns.

    What to do

    If you have entered into, or are contemplating, an arrangement of this type we recommend you:

    • seek independent professional advice
    • review your arrangement
    • discuss your situation with the ATO by emailing PGIAdvice@ato.gov.au.
      Last modified: 13 Feb 2017QC 51287