Accountants warn against ATO’s harsh family trust | Australian Markets

Major accounting group, CPA Australia has warned that family trust modifications being carried out by the Australian Taxation Office (ATO) are inserting appreciable stress on the accounting occupation resulting in elevated litigation risk for historic liabilities.

As properly, CPA Australia has instructed Treasury that the absence of a statutory limitation period means claims can come up a few years after the unique occasion, {and professional} indemnity insurers might reject these claims.

“This situation discourages professionals from preparing income tax returns or offering tax advice, particularly in areas involving discretionary trusts, potentially reducing the availability of advisory services,” the submission to Treasury’s session on Amendments to the Family Trust Election provisions stated.

CPA Australia stated that the trust loss provisions had been enacted in 1995 and had launched Family Trust Elections (FTEs) and Interposed Entity Elections to offer exceptions for trusts managed for the benefit of a family group.

It famous that the Family Trust Distributions Tax (FTDT) was launched as an anti-avoidance measure, making use of to distributions made exterior the outlined ‘family group’.

“Importantly, the Government’s original expectation was that FTDT would be “optional” and would “never need to be paid”, serving primarily as a deterrent against tax avoidance,” it stated. “Despite this original intent, the Australian Taxation Office has identified a number of issues with the provisions and has made it clear that it is bound to apply the law as written, resulting in significant FTDT liabilities being imposed (or being at risk of being imposed) on taxpayers.”

The CPA Australia submission stated the accounting physique believed the FTDT ought to serve its authentic objective as a deterrent for clear and unintended breaches, however the legislative framework ought to present acceptable choices for inadvertent errors.

Commenting on the submission, CPA Australia Tax Lead, Jenny Wong stated Australian family companies ae dealing with important financial misery due to the present software of the tax legal guidelines affecting family trust.

“What was intended as a deterrent is now imposing disproportionately harsh penalties with unintended consequences,” she stated.

“The provisions are incredibly complex, leading to historical misunderstandings and the imposition of FTDT due to technical deficiencies, even when distributions remain within the “economic” family group with no mischief concerned.”

“Many taxpayers are struggling to evidence valid Family Trust Elections made decades ago, and there are limited opportunities to alter these elections even for genuine mistakes or unforeseen events,” Wong stated. “This leads to inadvertent breaches and ongoing liabilities, often for distributions that remain within the ‘economic’ family group with no mischievous intent.”