The Institute of Chartered Accountants (ICAA) has urged that the taxation arrangements around trusts become less complicated, amid last week's confirmation by the Australian Taxation Office (ATO) that it will again be closely monitoring trusts activity in the current financial year.
The ICAA's Paul Stacey said it was clear the ATO continued to see trusts as an area of risk, particularly in the small to medium enterprise (SME) space.
Discussing the ATO's compliance program for 2012/13, Stacy pointed to the fact the ATO had noted it was seeing examples of trusts being used in an 'aggressive' manner, with the example given being of trust deeds specifying a low trust income in circumstances where the trust had a large tax income.
He said the Federal Treasury was in the process of completing its review of the taxation treatment of trusts to act and it seemed that, in the meantime, the ATO was seeking to minimise the risk in a number of ways, through:
- The use of sophisticated relationship mapping software – business groupings in the SME space are often complex. Trust beneficiaries can be corporate, individuals or indeed other trusts. This software helps the ATO follow the flow of income through these structures to identify instances of under-reporting of income.
- Enforcement of quarterly TFN reports – after a transition period, the ATO is now looking to enforce the obligation on trustees of closely held trusts to disclose the beneficiaries' TFNs quarterly (where these haven't been previously reported). The TFN reporting links trust distributions to beneficiaries. This measure, which was introduced in 2011, has successfully reduced 'unmatched beneficiaries' – which equate to unreported trust income – from 7.3 per cent to under 2 per cent.
- Fieldwork – the ATO will be contacting 1,000 or so trustees, undertaking 30 risk reviews and 15 audits.
Stacey said the ICAA had commented a lot in the past about improving the taxation of trusts and had been particularly involved in Treasury's review of trust arrangements.
"We'll soon see Treasury's final recommendations, and between these measures, let's hope the taxation of trusts becomes somewhat more straightforward," he said.
