On 31 January 2017, the ATO released Taxpayer Alert TA 2017/1 Re-characterisation of income from trading businesses.

The ATO said it is reviewing arrangements that attempt to fragment integrated trading businesses in order to re-characterise trading income into more favourably taxed passive income. Its concern arises where a single business is divided in a contrived way into separate businesses. The income that might be expected to be subject to company tax is artificially diverted into a trust where, on distribution from the trust, that income is ultimately subject to no tax or a lesser rate than the corporate rate of tax. Stapled structures are one mechanism being used in these arrangements, but the ATO said its concerns are not limited to arrangements involving stapled structures.

The ATO said it is engaging more closely with taxpayers who have proposed these arrangements to explore the issues of concern and ensure that arrangements of the type outlined in the Alert do not seek to avoid the payment of corporate tax. Taxpayers and advisors who implement these types of arrangements will be subject to increased scrutiny. The ATO said it is continuing to develop its technical position on these arrangements and expects to issue further guidance in respect of its concerns.

Source: ATO, Taxpayer Alert TA 2017/1, 31 January 2017, https://www.ato.gov.au/law/view/document?DocID=TPA/TA20171/NAT/ATO/00001.