Tens of millions of dollars of revenue lost through dodgy trust structures
Just a handful of dodgy tax structures being used by Australians cost tens of millions of dollars in lost revenue, according to the Australian Taxation Office.
That could mean many millions more are missing, and is why the ATO is cracking down on people misusing trusts.
The agency has long been monitoring tax structures used by the wealthy in order to lower their tax rates, and on Thursday issued another taxpayer alert against use of such arrangements.
Deputy commissioner Michael Cranston said trustees engineer a reduction in trust income to get tax breaks and avoid paying tax.
“Ten of the cases we are examining show lost revenue of more than $40 million,” he said, adding that they “go far beyond legitimate tax planning”.
“We are looking closely to see if arrangements comply with trust law, constitute a sham, or are captured by anti-avoidance provisions or integrity rules,” Mr Cranston said .
How do trusts get misused?
The structures are most often used by the wealthy. In 2014, the ATO sent letters to taxpayers worth more than $30 million seeking information about tax structures, including trusts.
Former treasurer Joe Hockey, while in opposition, suggested trusts should be taxed in the same way as companies at a rate of 30 per cent.
Given an almost 20 per cent gap between the corporate tax rate and the top marginal income tax rate, the wealthy often channel income into trusts to avoid paying income tax.
It can be minimised by distributing it to people on low tax rates such as children or retirees. They can also funnel payments into a purported private company partnership for the purpose of qualifying for the lower corporate tax rate.
Mr Cranston said the ATO had targeted people involved in tax avoidance or evasion using trusts by drawing on earlier budget funding for the Trusts Taskforce, which was established in 2013.
The ATO says that since 2013 it has raised $772 million in liabilities and collected $164.5 million in cash. It says in addition to cash collected, assets of $55 million have been restrained under proceeds of crime legislation.
ANAO disputes the figures
While the ATO firmly stands by the accuracy of its own figures, a recent report from the Australian National Audit Office was critical of the way the agency reports revenue raised.
The ANAO’s report said the ATO would “distort revenue from one year to another”, and specifically cited the liabilities it claimed it had raised via the Trusts Taskforce as an “abnormal” case.
The agency said the ATO had previously calculated actual direct liabilities of $300 million in 2013-14 and $241.6 million in 2014-15 for the Trusts Taskforce, compared with budget estimates of $10.6 million in 2013-14 and $62.8 million in 2014-15.
The substantial difference in the estimated and actual outcomes, the ANAO said, was due to a major crime investigation that started in 2012. Excluding this, the actual result would have been $37.9 million in 2013-14 and $28.2 million in 2014-15, it said.