04 Jun 10 Preamble - Friday, 4 June 2010The Tax Office this week released its final ruling on unpaid present entitlements, which will seriously affect hundreds of thousands of families and small businesses operating through trusts.
The Taxation Institute issued a media release on Wednesday 2 June entitled 'Tax Office Ruling Could Cost Families and Small Business Hundreds of Millions of Dollars' .
As was foreshadowed by the ATO, it will treat as loans money that private companies are entitled to receive from a trust even though the amount may remain unpaid. They will treat these unpaid present entitlements as a deemed dividend.
The legal reasoning in the ruling is flawed. An unpaid present entitlement is not a loan except in very limited circumstances. We also have serious concerns about the adverse tax impact that this will have on trusts and corporate beneficiaries. 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.
This retrospective ruling is clearly inequitable given that individuals and businesses set up these structures in a manner consistent with the long-standing interpretation of the law.
The Taxation Institute has lobbied vigorously against the ATO ruling and will continue to demonstrate its serious implications in discussions with the Government.
Please see below for other activities this week.
Robert Jeremenko FTIA