ATO targets private company partnerships

The Australian Taxation Office (ATO) has announced a review of arrangements where a ‘purported' partnership with a private company partner is used to enable individuals to access business profits without paying ‘top-up' income tax at their marginal rates of tax.

According to ATO Deputy Commissioner, Michael Cranston, the ATO is seeing "contrived arrangements where business profits are claimed to be diverted to a partnership and as much as 99 per cent of profits are allocated to the private company and taxed at the 30 per cent tax rate".

"The company typically doesn't control or benefit from the profits," Cranston said. "Rather, the money is loaned or paid to individuals who do not include the amounts in their assessable income, avoiding ‘top-up' income tax on what they receive."

Typically, the profits are channelled to the partnership via a discretionary trust or through dividends from a private company, such as under a ‘dividend access share' arrangement. The partnership may also derive income from carrying on a business.

Cranston said the ATO was currently reviewing a number of cases that involve this type of arrangement.

"We encourage taxpayers who think they may be involved in such arrangements to contact the ATO to make a voluntary disclosure or seek a private ruling," Cranston said.

He added that affected individuals should consider seeking independent advice from an adviser not involved with this type of arrangement.