We recently had the tax office select one of our clients for audit, requesting evidence that their deductions against trust income were in fact legitimate claims.
To paint the story for you; this client received distributions of approx $50,000 from their hybrid trust in 2011FY, relating to their special income unit investments into that entity. Against that $50k of income, the client claimed approx $130k worth of deductions for interest and borrowing costs, leaving him with negative gearing to the tune of around $80,000.
Coupled with the client’s other deductions, this resulted in a refund of around $48k which, naturally, the tax office were a little reluctant to release too quickly.
So, we were instructed to provide evidence of the expenses incurred along with the trust deed and subsequent amendments. Those of you playing at home will remember the update process that we began back in May this year to bring all hybrid trust deeds into line with current tax office views. Having done so, the tax office had no argument against the deductions and have just released the refund in full AND will also pay interest backdated to when the return was originally lodged.
Fantastic news!!