Tax Avoidance Taskforce – Trusts
In the 2013–14 Budget, the government announced 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, this work continues under the operational umbrella of the Tax Avoidance Taskforce.
This information is for taxpayers, tax professionals and the wider community who may be concerned about risky arrangements involving the use of trusts for tax avoidance or evasion. We set out how the ATO and other agencies are taking action in response to evidence of increased manipulation of trusts as vehicles for tax avoidance or evasion.
If you're concerned about the implications of your tax planning arrangements, you can seek independent professional advice, contact us or make a voluntary disclosure.
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Tax Avoidance Taskforce – Trusts: what we do
The Tax Avoidance Taskforce – Trusts continues the work of the Trusts Taskforce. It does this by targeting higher risk trust arrangements in privately owned and wealthy groups. These are not ordinary trust arrangements or tax planning associated with genuine business or family dealings.
We recognise that most trusts are used appropriately. We will continue to help those who make genuine mistakes or are uncertain about how the law applies to their circumstances.
We have a number of trust risk rules in place to identify higher risk compliance issues. Most trusts do not trigger these risk rules.
Our priorities in relation to trusts are to:
- undertake focused compliance activity on privately owned and wealthy groups involved in tax avoidance and evasion arrangements using trust structures
- target known tax scheme designers, promoters, individuals and businesses who participate in such arrangements
- lead cross-agency action to pursue the most egregious cases of tax abuse using trusts
- undertake projects to gather intelligence on and deal with specific risks.
We aim to build community confidence and encourage voluntary compliance by publicising our activities in relation to trusts and undertaking education projects to improve voluntary compliance.
We focus on the following risks:
- lodgment of trust tax returns
- accurate completion of return labels
- present entitlement of exempt entities
- distributions to superannuation funds
- inappropriate claiming of capital gains concessions by trusts.
What attracts our attention
Arrangements that attract our attention include 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 mischaracterised to achieve concessional capital gains tax treatment – for example, by using special purpose trusts in an attempt to re-characterise ordinary income as discountable capital gains
- transactions are undertaken for the dominant purpose of changing the character of trust income in order to achieve lower rates of tax (e.g. accessing withholding tax provisions)
- changes have been made to trust deeds or other constituent documents to achieve a tax planning benefit, with such changes not credibly explicable by other reasons
- transactions have excessively complex features or sham characteristics, such as circular distributions 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 have unpaid tax debts.
We will be focusing particularly on the privately owned and wealthy groups market.
What you should do
If you're unsure about the full implications of trust or tax planning arrangements either in place or contemplated, we recommend you seek independent advice, review your arrangement or discuss your situation with us by emailing TrustRisk@ato.gov.au (mark all information 'sensitive').
If you need to adjust a tax position you have previously taken you can make a voluntary disclosure.
If you're aware of potential tax avoidance or evasion arrangements involving trusts proposed to you by other taxpayers and advisers, email TrustRisk@ato.gov.au
Agencies involved
As well as the ATO, the Tax Avoidance Taskforce – Trusts works closely with the following agencies:
Results and insights – Trusts Taskforce
In the 2013–14 Budget, the government announced it would provide $67.9 million over four years for targeted compliance action against people who have been involved in tax avoidance or evasion using trusts. This measure was estimated to increase revenue by $379 million over the forward estimates period and, in underlying cash terms, increase receipts by $217.1 million.
From 1 July 2013 to 30 June 2017, the Trusts Taskforce raised over $951 million in liabilities and collected in excess of $283 million. In addition to the cash collected, assets of $55 million were restrained under proceeds of crime legislation.
The Trusts Taskforce targeted known tax scheme promoters, individuals and businesses who participated in such arrangements. It also used our intelligence systems and analysis of tax returns to identify and deal with abusive use of trusts.
In the most serious cases, criminal sanctions were pursued in collaboration with law enforcement authorities, through the Serious Financial Crime Taskforce and collaboration with overseas authorities.
Amongst its achievements, the Trusts Taskforce:
- finalised 62 audits and 864 reviews
- had two convictions for serious tax fraud and referred a further four matters to law enforcement agencies for criminal investigation
- issued three significant Taxpayer alerts with further alerts being issued by the Tax Avoidance Taskforce
The Trusts Taskforce identified a number of examples 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.
This focus on egregious trusts arrangements continues under the operational umbrella of the Tax Avoidance Taskforce – Trusts.
Supporting Research
The Tax Avoidance Taskforce uses a range of sources when developing strategies to address non-compliance.
As part of our ongoing program of work, the ATO commissioned the Royal Melbourne Institute of Technology (RMIT) to conduct independent research and provide an additional perspective on tax issues involving trusts to assist us to develop mitigation strategies to address trust mischief.
This paper ‘Current Issues with Trusts and the Tax System’ is available on our website.
The Tax Avoidance Taskforce – Trusts targets higher risk trust arrangements in privately owned and wealthy groups.