Charitable trusts loophole removed

Press, 13 October 1982, Page 11

Charitable trusts loophole removed

A significant tax loophole, the formation of charitable one-person trusts, is removed by the Income Tax Amendment (No. 2) Bill. The bill will remove the tax loophole that enables some individual taxpayers to avoid tax on their business income through the formation of so-called “personal” or “one-person” charitable trusts or companies. From April 1, 1983, the income from businesses carried on by or on behalf of the trustee of charitable trusts will be taxable if any benefit is obtained from the

carrying on of any business. This will apply to anyone who is a shareholder or director of the charitable company or settlor or trustee of the charitable trust (or by an associate) and that benefit is influenced by the relationship between that person and the company or the trust. The measures were aimed at removing the anomaly of the contrived tax-exempt status of businesses ostensibly conducted as charities, said the Minister in Charge of the Inland Revenue Department, Mr Falloon.

They would not affect the exemption of the business activities of churches and recognised charities. He said the measure stopped short of what had been proposed in the Budget. As a result of many submissions, the new framework would enable genuine charities to stay properly exempt from tax. However, it also made sure that the proponents of tax avoidance schemes through the exploitation of charitable status enterprises would not escape due taxation, Mr Falloon said.