Service trust arrangements - related party dealings under ATO attack again - Avustralya

Since the Federal Court's decision in the Phillips case the Commissioner of Taxation has had to accept the practice of using service trusts. In its recently released ruling, the ATO confirmed that it will continue to allow the use of service trusts as long as they are entered into for commercial reasons and the fees charged by the service trust are not grossly excessive.

A service trust arrangement usually exists where a partnership provides professional or other services to clients and a trust is set up to provide a range of services (such as labour hire, recruitment, clerical, administrative) to the partnership.

The ATO has also released a guide to help professional firms determine if the fees charged by the service trust are commercial.