ATO turns highlight on preserving agencies set as much as keep away from tax

It stated TA 2023/1 implemented to preparations that “seen objectively” had the dominant function of fending off tax.

“We’re reviewing preparations the place people search to get entry to non-public corporate income with none further particular person tax legal responsibility, by way of arranging for the income to be handed to them by way of an interposed corporate,” the ATO stated.

It stated “severe consequences” may just follow and it could refer any tax brokers considering selling the preparations to the TPB.

TA 2023/1 stated those preparations generally concerned:

“A personal corporate (first corporate) has retained income on which it will have paid tax on the company price. Stocks within the first corporate are held by way of a person who will also be a director of the primary corporate.

“The person disposes in their stocks within the first corporate to a personal corporate (interposed corporate), receiving stocks within the interposed corporate in go back.

“The stocks within the interposed corporate are issued at a paid-up quantity being the similar as, or very similar to, the online belongings of the primary corporate which incorporates the retained income of the primary corporate.

“The person applies a CGT roll-over, such because the CGT roll-over in Subdivision 122-A of the ITAA 1997 [Income Tax Assessment Act 1997], to forget for tax functions any capital acquire at the disposal of the ones stocks within the first corporate.

“The primary corporate pronounces a franked dividend to the interposed corporate. The primary corporate discharges its legal responsibility to pay the dividend by way of tactics corresponding to money, cheque or promissory observe.

“The interposed corporate supplies a mortgage to the person, sourced from the dividend gained. The phrases of the mortgage don’t conform to phase 109N. For instance, the mortgage could also be interest-free and repayable at name.

“Neither the interposed corporate nor the primary corporate have enough distributable surplus for Department 7A to regard the mortgage made to the person as a deemed dividend (whether or not at once from the interposed corporate or not directly from the primary corporate).”

The ATO stated it was once involved that taxpayers or agencies collaborating in such preparations may well be underneath the misapprehension that they had been efficient in serving to the person keep away from tax.

Then again, the administrative center would center of attention at the whether or not there was once any goal to pay off the purported mortgage, whether or not the scheme amounted to a “dividend stripping” operation or if got here underneath the overall anti-avoidance provisions in Phase IVA.