Transferor trust rules
The transferor trust rules are contained in Division 6AAA of the ITAA 1936. They are similar to the controlled foreign company rules and cover the accumulation of income in low tax jurisdictions.
While the controlled foreign company rules apply to interests in foreign companies, the transferor trust rules apply to interests in non-resident trusts. The transferor trust rules are arguably more severe in their application than the controlled foreign company rules. Their relative harshness is the result of a number of distinguishing factors peculiar to trusts, including their high degree of flexibility, historical use of arrangements for avoiding Australian tax, and the practical difficulties in establishing the existence and particulars of trust arrangements, especially blind trust arrangements.
The aim of the transferor trust rules is to attribute income earned by a non-resident trust to an Australian taxpayer. That is, to tax an Australian taxpayer on income earned by such a trust.
Without the transferor trust rules, there would not be an Australian taxpayer who could be assessed on the trust's income. The trustee of the trust would not be an Australian entity and in many cases no beneficiary would be presently entitled to the income of the trust.
The transferor trust rules therefore tax every Australian taxpayer who has transferred property or services to the non-resident trust. Such an entity is known as an 'attributable taxpayer' in relation to the trust.