Trusts under attack by Tax Office

The Australian Tax Office (ATO) has just recently issued a draft ruling (TR 2009/D8) that could potentially affect those health professionals who operate through a trust structure. As many of you would be aware, one of the key benefits of operating under a discretionary trust structure is that the trustee has discretion over the distribution and can distribute to family members and associated companies, effectively capping the tax rate at 30%.

In this draft ruling, the ATO has changed its position on the unpaid trust entitlements (distributions) and is saying that these unpaid trust entitlements are now considered loans. The risk is that if these loans are not paid out (i.e. actually paying the cash to the beneficiary) or have a loan agreement in place, they may be declared a ‘deemed dividend’ under division 7A. This would result in higher taxes for the beneficiary.

Note that this is a draft ruling at this stage and there have been many submissions by practitioners, such as PKF, objecting to the ruling.

If you require any further advice or would like to know more about the subject, Medical Alliance has arranged for all Health Professionals to receive a one-off 3 hour consultation for FREE by a PKF professional.

In order to receive your free health-check and determine if the new proposed ruling would affect your structure, please CLICK HERE.

(Source: Medical Alliance: March 2010)