Taxation Ruling IT 2344 (Addenda exist) - Income Tax : trust schemes with non-resident beneficiaries : assessing guidelines : determination of objections : settlement guidelines

What this ruling is about: This Ruling, which takes the place of previous National Office memoranda, provides assessing and settlement guidelines in respect of schemes which seek to exploit the step-like nature of the tax rates or the exempt status of some entities through the making of alleged trust distributions to non-resident beneficiaries. In these cases, the non-residents, if they exist, are never intended to receive the benefit of the purported distributions. 2. The type of schemes covered by this Ruling operated in the 1978 and later income years but lost some of their attraction when amendments introduced by the Income Tax (Rates) Act 1982 removed the zero rate step for non-residents generally. Under the schemes, the net income of the trust is allegedly distributed to non-resident beneficiaries in order to minimise (or avoid completely) tax in the hands of both the trustee and beneficiaries. A common feature of the schemes is that the amounts purportedly applied for the benefit of the non-residents are not paid to or are not retained by them but are retained in or reimbursed to the trust or its associates and are shown in the accounts as amounts owing to the beneficiaries.


Ruling: Assessing Guidelines: 3. In determining the bona fides or otherwise of these arrangements for the purposes of assessment and determination of objections, regard should be had to the factors listed below. It should be noted that the factors are not necessarily exhaustive and that no particular factor is necessarily decisive - 4. Factors which may lead to a conclusion that the distribution to a non-resident beneficiary is genuine include : 5. Where, after consideration of the facts of a particular case, it is not possible to be satisfied on reasonable grounds that the non-resident beneficiaries purportedly benefiting from a distribution of the trust income were ever intended to receive the benefit of that income, the following assessment action is considered appropriate - | Additional tax (Penalty): 6. Additional tax by way of penalty under the former sub-section 226(2) should be imposed and remitted in accordance with the general principles set out in Taxation Rulings No's IT 2012, 2028, 2043 and 2206. | Determination of Objections: 7. Objections should be disallowed where, after a consideration of all relevant factors, it is still not possible to be satisfied on reasonable grounds as to the bona fides of the arrangements allegedly conferring present entitlement. 8. Objections should, of course, be allowed in cases where it is decided on the total information available that the arrangements are genuine. | Settlement Guidelines: 9. The following settlement guidelines do not cover cases falling to be considered under the additional tax (penalty) provisions of the new Part VII, effective from 14 December 1984. 10. Settlement offers on behalf of the trustee and all relevant taxpayers may be accepted in respect of these schemes where they are made in the following terms - 11. In respect of assessments that have already issued in these cases, the basis of settlement described above will be available for 30 days after the date of issue of this Ruling. The due date for payment of assessments which have not yet issued will be the effective cut-off date for the receipt of settlement offers. Offers made and received after the appropriate date will be considered on their respective merits. | Recovery: 12. In cases where assessments under both section 99A and the default beneficiary basis have been raised, recovery action should be instituted only in respect of the assessments raised on the default beneficiary basis (see Taxation Ruling No. IT 2156). Where, in terms of the trust deed, no genuine beneficiary is presently entitled to the income, recovery action should be pursued in respect of section 99A assessments issued to the trustee. COMMISSIONER OF TAXATION 7 August 1986




View the Addendum notice for this document. | View the Addendum (2) notice for this document. | Date original memo issued: 12 April 1985


Legislative references: DIVISION 6 FORMER SUB-SECTIONS 226(2) and (3)
Subject references: INCOME TAX AVOIDANCE TRUSTS WITH NON-RESIDENT BENEFICIARIES