The Australian Taxation Office (ATO) has warned firms using discretionary trusts that they may not be withholding the correct amount of tax or paying appropriate superannuation to individual participants, and could be liable for penalties and charges.
Tax commissioner Michael D’Ascenzo said he was concerned that individuals who entered into this arrangement with a firm may be unaware of the risk that it could be ineffective under tax and superannuation laws.
“We are concerned that individuals may enter into these arrangements to reduce tax liabilities by splitting their income with an associate and that the arrangement may not satisfy the personal services income tests and that the anti-avoidance provisions could apply,” he said.
The ATO will be writing to firms facilitating these arrangements about concerns that they may risk contravening the promoter penalty laws.
It has asked anyone who has participated in discretionary trusts to seek guidance from the ATO before 30 April, 2011 and before the regulator contacts them.
Those who do will be entitled to a reduction in any penalties that may apply.
