The ATO announced yesterday that it proposes to apply a form of concessional administrative treatment for certain custodial or nominee relationships. In particular, the ATO does not currently intend to disturb the current market practice of disregarding some of the trust relationships that may technically arise under certain custodial, nominee or other “bare trust” relationships for tax purposes. This is in part because the issues raised by the Federal Court's decision in Colonial First State Investments Limited v Commissioner of Taxation are the subject of broader review and reform.
Whether such relationships should be recognised as separate trusts for tax purposes has, for some time, been uncertain, particularly following the ATO’s original decision impact statement to the Federal Court’s decision in Colonial First State Investments. The ATO continues to be of the narrow technical view that such relationships must be treated as separate trusts for tax purposes which can, in certain circumstances, give rise to unusual and sometimes adverse tax consequences.
Accordingly, the ATO’s proposal to not disturb the current market practice of disregarding such arrangements for tax purposes should provide some relief for those financial services organisations that offer those types of services to their clients and those funds and investors who utilise such arrangements to hold their investments.
However, investors using such arrangements and providers of such arrangements should note the following features of the ATO’s proposed administrative treatment:
For more information about King & Wood Mallesons visit www.kwm.com
What do you need to doConsider whether proposed administrative treatment will be available for your custodial and nominee arrangement.