Will your service trust survive an ATO audit?
The
extensive use of service trusts as a means of income splitting and asset
protection has been under close examination by the Australian
Taxation Office. With this in mind, it would be
prudent for professional practices to review their
service trust arrangements to ensure that they are properly
documented as well as commercially relevant and up-to-date. An
adverse ATO service trust audit would make the practice vulnerable to
attack under the
anti-avoidance provisions of Part IVA of the Income Tax Assessment Act
1936 thereby:
-
denying the professional
practice any tax benefits flowing from the service arrangement;
-
determining all the income of
the service trust as the income of the professional practice.
These adverse consequences
would apply not
only to the last financial year but retrospectively to
the whole period of the service trust arrangement. Such an outcome could be disastrous.
Some
of the main factors which the ATO will scrutinise in an audit include:
-
the type of
service trust used;
-
the commerciality of the
service trust arrangements and whether all arrangements (including
the management of the service trust) are at arm’s length;
-
whether written
agreements between the professional practice and the service trust
are in place and whether those agreements reflect what is
actually happening;
-
the fees and rates
charged by the service trust to the professional practice and in
particular whether any fees are implicitly “double charged”; and
-
whether a correlation
exists between the distributions from the professional practice and
distributions from the service trust.
Hynd
& Co Commercial Lawyers are currently offering to review service
trust arrangements for a fixed fee of $500 (plus GST). This review will
identify the areas, if any, that require further attention to ensure that
the service trust survives an ATO audit.
If you
would like us to review your current service trust arrangements, please
contact Darren Foeng of Hynd & Co Commercial Lawyers on 8223 6499.
DISCLAIMER:
The material contained in this publication is comment of a general nature
only and is not nor is it intended to be advice on any specific matter. As
appropriate professional advice depends upon the particular circumstances
of each case, neither the firm nor any individual author accepts any
responsibility whatsoever for the consequences of reliance upon the
content of any articles. Before acting on the basis of any material
contained in this publication, we recommend that you consult your
professional adviser.
