A Taxpayer Alert has been issued warning the Australian Taxation Office (ATO) has concerns about schemes being promoted to retailers.
The schemes seek to re-direct rebates and volume discounts from wholesalers into claimed mutual associations to avoid tax.
Tax Commissioner Michael Carmody says the arrangement appears to be promoted in some sectors of the retail industry as a way of generating 'tax-free' income.
A mutual association involves establishing a common fund which is controlled by members for their own benefit and not for profit.
"The bona-fide use of mutual associations is not called into question by this Alert," Carmody says.
"This Alert is aimed at arrangements where a retailer claims a deduction for a volume discount or allowance redirected into a mutual association, and then gets a significant portion of it returned to them 'tax free'."
These arrangements raise ATO concerns because:
- the purported mutual association may not be a mutual
- contributions to the association may not be deductible to the members or may be assessable to the association
- surpluses returned to members may be assessable income to them
- the Part IVA anti-avoidance provisions of the Tax Act may apply.
Taxpayers who have entered into or are contemplating entering into an arrangement similar to that described in the Taxpayer Alert should contact ATO officer Lyn Bosley on (02) 9374 2459.
The full text of the Alert can be viewed on the ATO
website.