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Good news for custodial, nominee and other “bare trust” providers and clients: ATO will not seek to disturb current market practice

The ATO announced yesterday that it will not disturb the existing market practice of effectively disregarding certain types of custodial, nominee or other “bare trust” relationships for certain tax purposes.  This should be a welcome development for some providers and users of custodial, nominee or other similar services, and resolve some of the uncertainty that currently exists for such arrangements.

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:

  • The proposed administrative treatment is set out in a revised version of the ATO’s decision impact statement to the Colonial First State Investment decision and the revised Practice Statement PS LA 2000/2.  The ATO’s decision to ignore such trusts for tax purposes is contained in the decision impact statement, and relief from the requirement for those trusts to lodge tax returns is contained in the Practice Statement.
  • The proposed administrative treatment will apply only to those trusts that are “bare trusts (including those referred to as nominee or custodian arrangements)” and trusts where a beneficiary has “an absolute, indefeasible entitlement to the capital and income of the trust”.  Accordingly, the scope of the administrative treatment is by no means certain and broad ranging, and nominees, custodians and their clients may wish to review the terms of their arrangements to seek to ensure that they fall within the intended scope of the ATO’s proposed administrative treatment.
  • "Bare trust" is a technical term that has been judicially considered. Whether the Commissioner is using the technical term is unclear and so casts some doubt over the scope of his administrative relief. The references by the Commissioner to ‘nominee or custodian arrangements’ are helpful.
  • The proposed administrative treatment will not apply where the ATO is formally requested to provide their view on the relevant issues.  Therefore, the ATO view has not technically changed and taxpayers should not expect to have the availability of this administrative treatment confirmed in a ruling.
  • The proposed administrative treatment does not apply in circumstances where, if a trust was recognised for tax purposes, the relevant trustee would be required to withhold or pay tax.  Therefore, custodian or nominees that hold investments for foreign residents will continue to have an obligation to withhold tax or will be otherwise liable to pay tax in respect of those residents in the usual circumstances, and foreign residents that hold Australian investments through such arrangements will still generally be exposed to such Australian taxes.
  • The proposed administrative treatment only applies while the Government is undertaking its general review of the scope of the trust taxation rules.  Accordingly, the proposed administrative treatment will not be permanent and custodian, nominees and investors should continue to monitor the Government’s reviews and reforms on this issue.

For more information about King & Wood Mallesons visit

Who does this affect?
All custodians, nominees and those funds and investors who hold investments through custodians and nominees.

What do you need to do
Consider whether proposed administrative treatment will be available for your custodial and nominee arrangement.


  • Cory Hillier - Senior Associate | Email
  • Kai-Chen Lamb - Senior Associate | Email

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