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Tax Office Ruling Could Cost Families and Small Business Hundreds of Millions of Dollars

Publication date: 02 Jun 10 | Source: THE TAX INSTITUTE

Hundreds of thousands of families and small businesses operating through trusts will be hit and many may go to the wall as a result of today's retrospective Australian Tax Office final ruling on unpaid present entitlements, the Tax Institute of Australia says.

The ATO will treat as loans money that private companies are entitled to receive from a trust even though the amount may remain unpaid. The ATO will treat these unpaid present entitlements as a deemed dividend.

"The Taxation Institute considers that the legal reasoning in the ruling is flawed and that an unpaid present entitlement is not a loan except in very limited circumstances," Institute Senior Tax Counsel, Robert Jeremenko said.

"We also have serious concerns about the adverse tax impact that this will have on trusts and corporate beneficiaries."
Mr Jeremenko said it would be no surprise if the cost to business of the ATO ruling ran to hundreds of millions of dollars.

"Many family trusts and SMEs which run their business using a trust structure will either have to restructure their affairs or they will be taxable on deemed dividends.

"Restructuring may have adverse affects as businesses or individuals may not have access to the cash required to restructure their affairs.

"Some small businesses may go to the wall as a result - especially as the ruling is retrospective.

"This is inequitable given that individuals and businesses set up these structures in a manner consistent with the long-standing interpretation of the law."

Mr Jeremenko said the Institute had lobbied vigorously against the ATO ruling and will continue to demonstrate its serious implications in discussions with the Government.

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For more information:
Robert Jeremenko, Senior Tax Counsel, Taxation Institute of Australia, T: 02 8223 0011, M 0468 987 300
Craig Regan, Lighthouse Communications, 02 9692 8811, 0408 448 527;
John Hanrahan, 02 9692 8811, 0411 212 965