The Australian Taxation Office (ATO) has issued an alert against the use of a unit trust mechanism to avoid personal income tax. The ATO considers arrangements that transform family home mortgage repayments into tax deductible interest items are illegal. The use of a unit trust is essential to the scheme and the ATO warning should be taken as strong advice that it will move to treat the scheme as an artificial attempt to reduce tax liability. The use of the unit trust has the potential to offer higher than allowed deductions through the application of net income distribution provisions.
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