The ATO recently issued taxpayer alert TA 2017/1, targeting certain stapled trust arrangements that have the potential to re-characterise trading income into more favourably taxed passive income.
“The intent of the alert is to target arrangements where profits of a business run by a company are allegedly diverted into a lower taxed entity, such as a Managed Investment Trust [MIT] owned by non-residents, which owns capital assets used by the business,” BDO tax partner Mark Molesworth said.
However, Mr Molesworth said the scope of the alert isn't clear, and that SMEs aren’t necessarily out of the woods.
“The focus of discussion to date had been on the re-characterisation of income from trading businesses, which partially misses the point because the reasoning in the alert could just as easily apply to small or medium-sized businesses,” Mr Molesworth said.
“Therefore, SMEs who have traditionally adopted such structures should pay attention to this alert. This includes structures where the business’ real estate or property is held in a related self-managed superannuation fund.”
Mr Molesworth has called on the ATO to clarify the scope of the alert.
“If the ATO truly intended the alert to only be applicable to large taxpayers, its wording needs to make that explicit. It is not clear from the plain words of the alert at present,” he said.
“Until the ATO expresses a view as to the type of taxpayer intended to be caught, SMEs would be wise to clearly document their reasons for adopting such a structure.”