The ATO is reviewing trust arrangements where parents enjoy the economic benefit of trust income appointed to their children who are over 18 years of age (Children).
The common feature of the arrangements is that trust income is appointed between members of the family group but in substance it is the parents who exercise control over and enjoy the economic benefit of the income.
According to TA 2022/1 the arrangements may display all or most of the following features:
The ATO is concerned that taxpayers are entering into these arrangements to avoid tax on the net income of the trust by utilising the lower marginal tax rate applying to the Children in particular circumstances. The ATO may invoke applicable specific or general anti-avoidance rules to these arrangements.
Although the alert specifically considers arrangements involving the children of controlling individuals, the ATO is also concerned about similar arrangements involving other family members of controlling individuals that would have lower marginal tax rates than those of the controlling individuals.
The ATO is currently reviewing these arrangements and engaging with taxpayers who have entered into, or are considering entering into these and similar arrangements. Taxpayers and advisers who enter into these types of arrangements will be subject to increased scrutiny from the ATO.
Source: Taxpayer Alert TA 2022/1 Parents benefiting from the trust entitlements of their children over 18 years of age, 23 February 2022.
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