The ATO has released Taxpayer Alert TA 2017/1 to say it is reviewing arrangements that try to fragment integrated trading businesses to re-characterise trading income as more favourably taxed passive income. The ATO is concerned with cases where a single business is divided in a contrived way into separate businesses. The business income expected to be subject to company tax is artificially diverted into a trust and, on distribution from the trust, that income is ultimately subject to no tax or to a lesser rate than the corporate rate of tax.
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The ATO explains that “stapled structures” are one mechanism being used in these arrangements, but the review will not be limited to arrangements involving stapled structures.
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TIP: Taxpayer Alert 2014/1 deals with similar arrangements where trusts “mischaracterise” property development receipts as concessionally taxed capital gains to obtain a lower tax rate.
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