The ATO has issued an alert warning people not to enter into arrangements where payments for any work they perform are made via distributions from a discretionary trust, so that the person providing the services is supposedly able to split their income with an associate (usually their spouse). A discretionary trust (or family trust) is one where the beneficiaries do not have fixed entitlement or interest in the trust funds and it is up to the trustee's discretion as to how much each of the beneficiaries outline din the trust deed are to receive a distribution of the trust's capital and income.
How the arrangement works
A labour hire firm puts on "service providers" to perform work or services for a third party client of theirs. Once the work is performed or services provided, the labour hire firm invoices the client, receives payment and then pays the service provider via a discretionary trust. Although distributions are supposedly discretionary, in reality the payments are consistent with the service provider's set rate of remuneration less the management fees deducted by the labour hire firm.Editor: The Tax Office is taking a dim view of these arrangements.
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