ATO Reviews Service Entity Arrangements
The Tax Office has finally released a draft ruling (TR 2005/D5) regarding the commerciality and operational issues they consider important when establishing and running service trusts. Their draft ruling has been developed after substantial consultation with industry bodies (including the Institute of Chartered Accountants).
We point out the following with regard to the draft ruling:
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it is just that (a draft ruling)
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it is based on case law that has been "good law" for years
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the arguments are largely about the commerciality of arrangements
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taxpayers using these structures who are "abusing" the system need to take care
The Tax Office are going to release additional information on this topic in coming months. They have indicated it is an area where they are focussing some attention and those businesses using service entities need to take care and ensure their arrangements are in order.
The distillation of it is that where you have been abusing the system (eg: marking up your phone bill by 50%), the ATO have indicated they believe they have strong case against you.
If you would like to discuss your service entity arrangements with us, please contact us on: