Forums / Getting Technical / Legal & Accounting / Profit washing scheme using a trust and loss entit

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  • Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    This recently released Tax Advice from the ATO may be of interest:
    TA 2005/1
    Profit washing scheme using a trust and loss entity
    http://law.ato.gov.au/pdf/tpa0501.pdf

    This Taxpayer Alert describes an arrangement where the taxpayer seeks to minimise tax payable by seeking to use tax losses in an unrelated entity. The business of the taxpayer is restructured so that the income of the business passes through a chain of trusts and on to a loss company. The income, less an amount for promoter fees, remains effectively under the control of the taxpayer, or associates.

    Terryw
    Discover Home Loans
    Mortgage Broker
    North Sydney
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    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of catacata
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    @cata
    Join Date: 2005
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    If the business is in a trust then another trust can be the benificary.
    I couldn’t open the link but I believe this to be true if the trust is flexible enough. I know many who do it, one being a highly regarded accountant who has about 60 IP’s and many businesses.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    Hi Cata

    From memory, this scheme involved using companies that had accumulated losses and stopped trading. The losses were just sitting there wasting away waiting to be offset by a capital gain. So promoters set up various structures where unrelated companies were made into related companies artificially and gains from the trusts were distributed to the companies and tax was avoided.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of catacata
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    @cata
    Join Date: 2005
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    This sounds a bit dodgey, not something I would do.
    The loss has to be real or the ATO might see it as tax avoidence.
    Cata

    Profile photo of 100100
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    @100
    Join Date: 2005
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    Dear Terryw and Cata,
    I read the TA and seems to me that ATO does not like the hybrid trust? If this is the case, what type of Trust would be better to start investing on properties?
    Best regards,
    Eleven

    Profile photo of TerrywTerryw
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    @terryw
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    Eleven

    I can’t see anything where the ATO doesn’t like hybrid trusts in that TA (or elsewhere). This is about a scheme anyway, so is different to property investment. And I have seen a private ruling from the ATO where they were happy with a hybrid trust owning an investment property. So I think you have nothing to fear, especially if you ask an accountant to properly set up your structure.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of catacata
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    @cata
    Join Date: 2005
    Post Count: 559

    Eleven

    I think the ATO dosen’t like anything that saves taxpayers from paying tax.
    Hybrid trusts are good but my preference is a Discertionary Trust.
    I believe that the hybrid trust is used alot when it is not needed. My opinion only.
    Different circumstances for different trusts, but I am a big fan of discretionary trusts.
    Cata
    Asset Protection Specialist
    CATA Asset Protection

    Profile photo of GreatPigGreatPig
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    @greatpig
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    Originally posted by Cata:

    Hybrid trusts are good but my preference is a Discertionary Trust.

    My understanding is that a hybrid trust is the same as a discretionary trust if no units are issued.

    GP

    Profile photo of catacata
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    @cata
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    A hybrid trust is a combination of discretionary and unit trusts. If it has no units then it will be a discretionary trust only.

    CATA

    Profile photo of GreatPigGreatPig
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    @greatpig
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    Cata,

    So when you say your preference is for a discretionary trust, would you include a hybrid trust provided no units are on issue?

    If so, then ISTM that a hybrid trust would be more flexible, being the same as a discretionary trust if no units are issued, but with units available if circumstances favour their issue (eg. negative gearing).

    GP

    Profile photo of catacata
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    @cata
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    GP

    What is ISTM?

    Not something I normally do but I think it sounds ok. I would have to look into it further though.

    I usually use the negative gear as an offset to a positive in another related trust as I am not a fan of negative gearing(personal opinion only). I perfer positive or netural gear with good growth potential.

    CATA

    Profile photo of catacata
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    @cata
    Join Date: 2005
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    GP
    I couldn’t hepl myself. I had to find out more.

    Yes, A hybrid trust with no units issued operates as a discretionary trust.

    CATA

    Profile photo of GreatPigGreatPig
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    @greatpig
    Join Date: 2004
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    Originally posted by Cata:

    What is ISTM?

    Shorthand [:)]

    It Seems To Me …

    GP

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