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Australia's Board Of Taxation Considers Bare Trusts Tax Reform

by Mary Swire,, Hong Kong
14 February 2018

Australia's Board of Taxation has published the results of its review into the taxation of bare trusts.

The Board considered whether, and how, to legislate in respect of what it said was the widespread practice of disregarding or looking through these trusts for income tax purposes. This practice is maintained by an administrative approach from the Commissioner of Taxation.

The Board estimates that there are almost AUD4.5 trillion in assets held via these arrangements by licensed custodians alone.

The Board recommended that it is now appropriate to enable certain bare trusts to be looked through for income tax purposes. It said that "where the terms of the trust are in substance equivalent to direct ownership of the assets by the beneficiary, the tax consequences should be analogous."

Under these rules, a person would be required to provide an income tax return as though any income, gains, and losses were made or derived personally.

The Board recommended that the reform could be achieved through a characteristics-based approach, where trusts exhibiting certain characteristics would qualify for look-through treatment. It recommended that the Government hold a consultation to determine and finalize the core characteristics and disregarded features of the arrangements that would come under the scope of any new law.

Revenue Minister Kelly O'Dwyer said: "This report is an important contribution to the Government's broader regulation reform agenda and the Government thanks the Board for its report."

A statement on O'Dwyer's website said that the Government will "look to progress the recommendations to streamline arrangements for bare trusts as part of the regulatory reform program. Treasury will undertake further consultation on the scope of potential changes, for example, in defining the core characteristics of a bare trust for taxation purposes."


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