ATO Taxpayer Alert on ‘Hybrid Trusts’

The ATO has just issued an alert which covers certain Hybrid Trusts:

TA 2008/3
Uncommercial use of certain trusts
http://law.ato.gov.au/atolaw/view.ht…/NAT/ATO/00001

From the end of the document:
The Tax Office considers that the arrangement outlined above may give rise to taxation issues that include:

1.
whether, and the extent to which, the taxpayer's borrowing costs are deductible under section 8-1 or section 25-25 of the Income Tax Assessment Act 1997 (ITAA 1997);
2.
whether a capital gain could arise under the capital gains tax provisions in Part 3-1 of the ITAA 1997 when trust interests are redeemed or new interests are issued;
3.
whether the taxpayer has 'created' a trust in which the taxpayer or their children have an interest, such that the trust may be subject to section 102 of the Income Tax Assessment Act 1936 (ITAA 1936); and
4.
whether the general anti-avoidance provisions in Part IVA of the ITAA 1936 may apply to the arrangement, on the basis that its dominant purpose is to enable the taxpayer to obtain a tax benefit.