Tax avoidance schemes are just one of the many red flags the Australian Taxation Office will be keeping its eye on this tax season.

In the right hands and for the proper purpose, holding companies can be set up to buy and hold all the shares and assets in one or more of their subsidiary companies. They are often advantageous for asset protection, business diversification & structuring reasons.

However, some individuals are misusing them for tax avoidance purposes.

Any arrangements that use interposed holding companies to avoid tax will be subject to additional scrutiny from the Australian Taxation Office and potentially severe penalties.

These may be arrangements where individuals seek to access private company profits without any additional individual tax liability by arranging for the profits to be passed to them via an interposed company.

These arrangements may involve:

  • A private company (first company) has retained profits on which it may have paid tax at the corporate rate. Shares in the first company are held by an individual who may also be a director of the first company.
  • The individual disposes of their shares in the first company to a private company (interposed company), receiving shares in the interposed company in return.
  • The shares in the interposed company are issued at a paid-up amount being the same as, or similar to, the net assets of the first company, which includes the retained profits of the first company.

Any involvement in tax-related schemes highlighted by the ATO throughout their current warnings and notices could involve severe penalties for taxpayers and agents promoting them.

Improper business structuring can lead to significant tax consequences, so let us help you avoid issues. Start a conversation with us today.

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