ATO warning on uncommercial insurance
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The Australian Taxation Office (ATO) has issued a strong warning to businesses against entering into arrangements that attempt to claim inflated deductions for uncommercial insurance expenses.
The warning was issued by the Tax Commissioner, Michael D’Ascenzo, who said the ATO had doubts about the legitimacy of the arrangements because they aimed to inappropriately reduce taxable income by claiming excessive tax deductions.
“We know these arrangements are in the market and we are warning businesses to be cautious about entering into them as they may be ineffective under the law,” D’Ascenzo said. “People involved in or considering these arrangements should be aware they face close examination by the Tax Office.”
Explaining how the arrangements work, the Tax Commissioner said they involved payments described as “insurance premiums”, which were excessive in relation to the coverage provided and featured no significant transfer of insurance risk.
“The dominant purpose of the arrangements appear to be an artificial and contrived attempt to convert a financial investment in a related tax haven entity into the form of a tax deductible insurance premium,” he said.
AUTHOR
Mike Taylor
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