03 Mar 11 Certain labour hire arrangements utilising a discretionary trust to split income - TA 2011/2
On 2 March 2010, the ATO issued Taxpayer Alert TA 2011/2 entitled "Certain labour hire arrangements utilising a discretionary trust to split income".
The Taxpayer Alert describes an arrangement where a labour hire firm makes a discretionary trust structure available for the use of individual taxpayers for the purpose of alienating income from personal services and splitting it between the individual taxpayers who perform the services and their associates.
The ATO says that this arrangement attempts to circumvent the personal services income (PSI) regime of Part 2-42 of ITAA 1997, as well as other income tax and superannuation obligations such as the Pay As You Go (Withholding) (PAYG(W)) system and the Superannuation Guarantee, but may be ineffective under these provisions or the general anti-avoidance rules.
In media release 2011/15, issued 2 March 2011, the Commissioner, Michael D’Ascenzo, reminded firms entering into such arrangements that they may not be withholding the appropriate amount of tax and providing the correct superannuation support to the individual participants and may be liable for penalties and charges under the Taxation Administration Act 1953 and the Superannuation Guarantee (Administration) Act 1992.
Anyone who has participated in these arrangements should seek guidance from the ATO prior to 30 April 2011 and before they are contacted by the ATO. If they do so, they will be entitled to a reduction in any penalties that might apply if the arrangements prove to be ineffective.