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ATO warns against partnerships

ATO warns partnerships

ATO warns partnerships

The ATO is reviewing arrangements where a purported partnership with a private company partner is used to enable individuals to access business profits without paying top-up income tax at their marginal rates of tax.

According to Deputy Commissioner Michael Cranston: “We’re seeing contrived arrangements where business profits are claimed to be diverted to a partnership and as much as 99% of profits are allocated to the private company and taxed at the 30% tax rate. The company typically doesn’t control or benefit from the profits. Rather, the money is loaned or paid to individuals who do not include the amounts in their assessable income avoiding ‘top-up’ income tax on what they receive.”

The profits are usually channelled to the partnership via a discretionary trust or through dividends from a private company, such as under a ‘dividend access share’ arrangement.

The Partnership may also derive income from carrying on a business.

The ATO is currently reviewing a number of cases that involve the arrangement, and although they are finalising their view, at this stage they consider that the arrangement may be ineffective at law.

Therefore, they encourage taxpayers who think they may be involved in such arrangements to contact the ATO to make a voluntary disclosure, or seek a private ruling or independent advice.

Ref: Taxpayer Alter TA 2015/4

NTAA, ‘The Tax advisers’ Voice’ Edition No.254


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