Recently the Australian Taxation Office issued the following alerts to help you recognise some of the ‘dodgy’ agreements that are out there. It is important that you are aware of these so that you do not get caught in the midst of something potentially illegal or at the very least frowned upon.

Life insurance bonds issued by tax haven entities
This taxpayer alert is there to caution you about investing in life insurance policies issued from companies based in tax havens, for example Vanuatu.

In this scenario, promoters will try to pull you in by marketing their life insurance policies as qualifying for concessional tax treatment on proceeds from the policy, or tax deductions on fees paid under the policy.

The catch is that many of these policies don’t qualify for such benefits and self managed super funds may also conflict with the superannuation regulations for complying funds.

Discretionary option plan arrangements
This is a warning from the ATO with regards to arrangements that attempt to create fake, up-front deductions through “discretionary option arrangements.”

These arrangements involve the employer making a ‘deductible’ cash contribution to a trustee of a trust. The cash is then paid back to the employer as consideration for acquiring options from the employer.

The trust generally has legal and beneficial ownership of the options for the sake of employees. In a future financial year the employer directs the trustee to allocate each option to an employee. This means the ownership of the option is passed from the trustee to that employee.
By exercising the option, the owner is able to acquire a share in the employer. By cancelling an option, the owner receives a cash amount referable to the market value of a share in the employer at the current time.

By using a trust and round robin cash flows the employer attempts to create up-front tax deductions and also allows employees to defer tax to a later income year.

Scrutiny over offshore super trust arrangements
Here the ATO advises that they will closely examine offshore trust structures that disguise themselves as superannuation funds, so that when money is transferred into Australia it will not be affected by tax.

For example, a person earns income overseas by appearing to be using offshore trusts to invest funds received from a related non-resident employer or service entity. Usually after many years, the accumulated money will be transferred to Australia under the pretext of retirement benefits or contributions to a complying superannuation fund. During the time spent in the overseas trust fund, the capital accruing overseas does not pay tax in Australia.

People who may not have declared all income gained from offshore activities have until the 30 June 2010 to do so before the tax office begins to scrutinise these offshore accounts.

Sham mortgage arrangements warning
In this tax alert we are warned about sham arrangements promoted as ‘mortgage management plans’ which guarantee to provide help for home owners to repay their loans sooner and to receive tax deductions to which they are not entitled.

In this scenario people are refinancing their home loans and creating what seems to be an investment loan in order to fund the purchase of shares in a fake company. The ATO is currently contacting over 140 people involved in these types of shams. These people will be asked to review their situation and invited to make a voluntary disclosure where necessary.

If you would like further information on any of the above or any other tax or accounting issues please visit and submit an online enquiry or contact us on 1300 QUINNS (784 667) or +61 2 9223 9166.