I am thoroughly enjoying reading the progress with the court case currently in progress with the Obeid clan (NSW ICAC).
Here's a great article on recent procedings:
There's plenty to be learnt from the shenanigans of the Obeids from great structures to disguise ownership to not paying tax on psuedo distributions from the trusts.
Can all these things still be done under current legislation or have things moved on a bit since they established their trusts?
If I were the Commissioner for Taxation I would probably look at an assets betterment assessment and let the Obeids argue they shouldn't be taxable, the onus would be on the Obeids
Everything is technically covered by the anti avoidance provisions of the tax act anyway.
Trusts are very effective when used properly, Pascoe hates them and I don't know why. They are perfectly legitimate vehicles for asset protection and wealth creation etc. Some people push it too far and if their income is high enough, they may figure that the legals and penalties of the last 7 years if they do get caught is less then they got away with.
RPI | Certus Legal Group / PRO Town Planners
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What probably happened was that money had been built up in the trust by investments etc and this money was lent to them as beneficiaries. This is hardly tax avoidance. If I lend a friend money it is not tax avoidance so why would this be tax avoidance?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It would depend on the terms of the loans & whether they were adequately documented (pure speculation).
Hi crj and All
You are spot on crj and the ATO will just send an assessment with penalties and the Obeids’ will have to fight them in court and try to prove they do not owe the tax.
They are all up the proverbial S*** creek.
Do you remember Offset Alpine ?
The 3 major players involved were Graham Richardson, Rene Rivkin and Trevor Kennedy who each got a bill for $2M plus.
Go to Wikipedia and look for Offset Alpine for the whole story.
In any case the trust loan scam was finished a couple of years back when the new Div 7A legislation with large teeth was passed.
This was to combat the trust and "bucket" company tax scam.
How does it work?
A discretionary trust is established for the family members and includes a company as a beneficiary and the usual classes of other un-named trust objects (beneficiaries).
The Strategy
After all the trust income is distributed though the family, anything left goes into the bucket. That is the company which declares the income and pays 30% tax. All this is fine so far, but the Director then make loans to the shareholders (same folk) at no interest or security and the loans were never documented or repaid. The effect is to avoid tax on a dividend distribution which would occur if the shareholders were to be paid a fully franked dividend. So they do not pay the personal tax due on the dividend. This is simply just tax evasion which is a criminal offence and can earn you a free room in jail as well as large financial sanctions. It’s what stupid people do hoping they wont get caught. (the 11th Commandment)
About Trusts.
Many people and politicians think that a Discretionary Trust is a tax saving device, IT’S NOT: it is an income splitting and asset protection device provided it is properly established for particular situations. You should not just grab a cheap document from a DIY web site.
Income splitting works because each adult taxpayer gets a tax free threshold (TFT), so if you have say six family members you have six TFT and at $18,200 each that’s $109200 tax free.
Then you dump the balance say $100K into the bucket company and pay 30% ($30,000) and you have $70K cash left over after paying $30,000 on total income of $209,200 which is an average tax rate of 14.34%. Pretty good don’t you think?
However any income retained in the trust is taxed at the top personal marginal rate 45%.
The Taxpayers Actual Position Div 7A
To avoid severe penalties the bucket company Directors must document the loans with statutory interest, current year rate 7.05% and the loans must be repaid within 7 years.
Property Investment Opportunities from Div 7A
Many people may think that the new laws have destroyed an opportunity but I don’t agree.
Properly used Div 7A offers some interesting ways to invest in property with low interest loans and provided the loan is used to derive income and capital gains Div 7A is a useful panning tool.
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But I will save that for another day.
Regards to All
Anthony K
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