On 16 May 2012, the ATO issued Taxpayer Alert TA 2012/2 entitled "New Zealand Foreign Trust arrangements".
The Taxpayer Alert describes arrangements where a New Zealand based foreign discretionary trust (New Zealand Foreign Trust) is used to avoid taxation on Australian sourced income. These arrangements may involve the provision of services, at a mark up, to an Australian resident business, or the diversion of Australian sourced income. The ATO is investigating these arrangements, including through Project Wickenby. The ATO view on the arrangement is set out in Taxation Ruling TR 2005/14.
This Alert addresses an arrangement similar to that described in Taxpayer Alert TA 2004/4 but also highlights additional features of concern. TA 2004/4 and TR 2005/14 continue to apply while new versions have been detected which warrant the issue of this Taxpayer Alert.
In media release No 2012/14, issued 16 May 2012, the ATO warned Australian individuals and businesses who use 'New Zealand Foreign Trusts' while earning their income from Australia to be careful of these arrangements as they are currently under investigation, including under Project Wickenby.
The Commissioner, Michael D'Ascenzo, said the ATO had issued the warning because promoters of the scheme have been marketing it as a way to accumulate Australian sourced income and capital on a tax-free basis because of taxation agreements between Australia and New Zealand.
"However, we think this is incorrect and misleading," Mr D'Ascenzo said.