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No deduction for loss between related trusts

Monday 12 June 2017

Businesses with related entities and trusts which they expect may provide some avenues for sharing or mitigating losses need to ensure the arrangements in place are sufficient to pass scrutiny.

In a recent Administrative Appeals Tribunal (AAT) decision the Tribunal affirmed that two family trusts that were involved in a building and construction business with other related entities were not entitled to a deduction or a capital loss for $4.3 million that they claimed related to a guarantee liability.

The AAT found that the documentary evidence and the oral evidence from the relevant trust controllers was not sufficient support for their claim that the guarantee obligation existed.

The AAT noted that unusual features of the “guarantee deed” put into question whether the trusts were genuinely subject to a guarantee obligation – including that the deed did not record any actions that the guarantors were to perform if the debtor defaulted.

No deduction for loss between related trusts Back