Taxpayer Alert TA 2003/1: Distribution to Superannuation Fund from Interposed Fixed Trust This Taxpayer Alert describes an arrangement where a taxpayer establishes a fixed trust to distribute business profits to the taxpayer's superannuation fund. This is done in an attempt to access the concessional tax rate of 15% on the distribution and at the same time avoid the age based deduction limits and superannuation surcharge.
Date of issue: 11 February 2003
Status: Current


Description: This Taxpayer Alert describes an arrangement where a taxpayer establishes a fixed trust to distribute business profits to the taxpayer's superannuation fund. This is done in an attempt to access the concessional tax rate of 15% on the distribution and at the same time avoid the age based deduction limits and superannuation surcharge. | The alert applies to arrangements having the following features. 1. An existing business is operated under a trust, partnership or company structure, or a new business is established within a trust structure. 2. For an existing business, modifications are made to the trust deed and a fixed trust is established as a beneficiary of the trust. Alternatively, the partnership or corporate business structure is replaced so that the business is now operated through a trust. 3. A fixed trust is also then established as a beneficiary. 4. The operating trust distributes a substantial amount of income to the fixed trust. 5. The fixed trust then makes an equivalent distribution to a superannuation fund. 6. The superannuation fund is purported to be taxed at the concessional rate of 15% on the distribution from the fixed trust. 7. The members of the superannuation fund are the owners of the business and other family members. | 1. An existing business is operated under a trust, partnership or company structure, or a new business is established within a trust structure. 2. For an existing business, modifications are made to the trust deed and a fixed trust is established as a beneficiary of the trust. Alternatively, the partnership or corporate business structure is replaced so that the business is now operated through a trust. 3. A fixed trust is also then established as a beneficiary. 4. The operating trust distributes a substantial amount of income to the fixed trust. 5. The fixed trust then makes an equivalent distribution to a superannuation fund. 6. The superannuation fund is purported to be taxed at the concessional rate of 15% on the distribution from the fixed trust. 7. The members of the superannuation fund are the owners of the business and other family members. | The ATO considers that the arrangement outlined above gives rise to taxation issues which include: (a) Whether the arrangement circumvents the anti-avoidance provisions of subsection 273(7) of the Income Tax Assessment Act 1936 ('ITAA 1936') which deals with special income of superannuation funds. (b) The opportunity to arbitrage tax rates between the concessional 15% tax rate for superannuation funds and the marginal tax rate on the business income (either at company or individual tax rates). (c) Circumventing the age based deduction limits. (d) Avoiding the superannuation surcharge. Note 1. The income of complying superannuation funds may be taxed at 47% if it is special income (section 273 of the ITAA 1936) Note 2. If the fund holds a fixed entitlement and derives income under an arrangement or has acquired the fixed entitlement under an 'arrangement' and the parties were not dealing with each other at arms length in relation to the 'arrangement', and the amount of income is greater than might have been expected if they were dealing at arm's length then the trust distribution from a fixed entitlement will be regarded as special income. | (a) Whether the arrangement circumvents the anti-avoidance provisions of subsection 273(7) of the Income Tax Assessment Act 1936 ('ITAA 1936') which deals with special income of superannuation funds. (b) The opportunity to arbitrage tax rates between the concessional 15% tax rate for superannuation funds and the marginal tax rate on the business income (either at company or individual tax rates). (c) Circumventing the age based deduction limits. (d) Avoiding the superannuation surcharge. | The Australian Taxation Office is examining these arrangements.





Related documents: ATO Interpretative Decision 2003/230 | TR 2006/7 | PS 2001/15 - Taxpayer Alerts | ITAA 1936 section 273 | Part 2 of Superannuation Contributions Tax (Assessment & Collection) Act 1997