The Tax Office has warned companies and their advisers about using a trust scheme to avoid capital gains tax after uncovering cases that triggered hundreds of millions in tax bills.
An official alert was issued after a small number of cases were uncovered involving unit trusts effectively disposing of assets without paying capital gains tax.
Assistant commissioner Kasey Macfarlane said the tactics were concerning and came with potential for significant risk to taxpayers.
“Our view is in these cases, the parties have entered into the arrangements in circumstances where a direct sale of the assets by the transferring unit trust would have been simple, viable and commercially what we would expect,” she said.
“The commercial substance of these arrangements is that a sale of the asset by the transferring trust to the third party purchaser is explicable only by the tax advantage purportedly obtained by the transferring trust.”
Under the transactions detected, the transferring and receiving trusts both choose to obtain a roll-over. The acquisition results in the receiving trust owing an amount equal to the purchase price, possibly in the form of a promissory note.
Ms Macfarlane said the only explicable reason anyone would enter into the method for an asset sale is to obtain a direct tax advantage.
So far a small number of cases have been detected usingthe ATO’s sophisticated data matching technology, which allows for transactions and structures to be spotted where they appear out of pattern.
“One of the reasons we wanted to provide the early warning is that compared to some tax avoidance arrangements that we see, this one is relatively straightforward to implement and replicate across a wide range of industries,” Ms Macfarlane said.
“From what we have seen, at least one case involves the sale of real property of several hundred million dollars. The potential outstanding tax liability in that case is approaching $100 million.”
Individuals detected using the method face being left with an outstanding tax liability and the possibility of significant administrative penalties and interest charges.
To date, no cases which would warrant prosecution have been detected buttax advisers directing their customers towards the arrangements risk facing promoter penalties and potential prosecutions.
Anyone who has entered into the arrangements or is contemplating doing so should seek a private ATO ruling or independent professional advice. A voluntary disclosure could reduce the penalties that may apply.
“So far we’ve only found a small number of these arrangements but we thought it was important to issue the taxpayer alert about these arrangements as soon as we could, in order to warn taxpayers and advisers that we have concerns about these arrangements and they potentially have significant risk,” Ms Macfarlane said.
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