Another one? They seem to crop up regularly. The Tax Office is still cracking down on illegal early release schemes, where promoters claim to be able to give you access to your super before your legal preservation age. Last week tax commissioner Michael D'Ascenzo released two alerts warning taxpayers and fund trustees about uncommercial trust arrangements. He said the Tax Office was reviewing these arrangements and people should be cautious about any deductions claimed.

What's the problem? The Tax Office is concerned people are using trusts to obtain tax benefits that are out of whack with their interest in the trust. Self-managed funds may be used in these schemes as income received by super funds is generally taxed at 15 per cent, a lower rate than applies to income received by companies or middle- to higher-income earners.

These arrangements can be quite complex but the alert describes the situation where a self-managed fund gets income from a trust controlled by an individual or family group. (In other words, it's not the public, widely held unit trusts the Tax Office is concerned about.)

The super fund has an interest - either direct or indirect - in the trust, along with other beneficiaries who are associated with or related to the individual or family controlling the trust. But in some cases, the income paid to the super fund is higher than it would have received under a normal commercial arrangement.

The alert says this disparity can be achieved in a number of ways. The trust deed may provide for fixed-income entitlements but allow those entitlements to be changed by the trustee, who can then direct the bulk of the income to the super fund. Such arrangements are often referred to as hybrid or hybrid-discretionary trusts.

Another twist is for the self-managed fund to be issued units in the trust for nothing or less than market value, thus entitling it to a greater share of the trust's income than its investment would normally justify.

A third strategy involves other beneficiaries redeeming their units in the trust at less than market value - again resulting in the super fund picking up a greater share of the income.

The alert says the trust deed may also seek to give the super fund a disproportionate share of the trust's capital gains.

The trust deed could deny or restrict capital gains to other beneficiaries, or allow them to redeem their units at face value (or face-value adjusted for inflation) rather than their market value.

Again, the intention would be for the gains to be taxed at the lower super fund rate. Ultimately the family or individual would benefit from that income or gains through their interest in the super fund.

Is the Tax Office saying these schemes are illegal? D'Ascenzo says the Tax Office isn't concerned about hybrid or discretionary trusts as such - it's concerned about taxpayers entering into uncommercial arrangements using these trusts to obtain a tax benefit to which they would not normally be entitled.

An accompanying tax alert warned about arrangements where investors borrowed to invest in discretionary trusts and claimed their borrowing costs as a tax deduction, even though income and capital from the trust was distributed to other beneficiaries (such as lower-income earners or a self-managed super fund).

The Tax Office says it has numerous concerns about the tax consequences of these arrrangements. For self-managed super funds, in particular, income from such trust arrangements could be non-arms' length income under tax law and be taxed at a higher rate than the super fund's other income.

The Tax Office also says that some trust arrangements could run into problems with the superannuation laws.

The alerts are available on the Tax Office's web site, http://www.ato.gov.au/atp - you're looking for TA 2008/4, relating directly to self-managed funds, and TA 2008/3 on other uncommercial trust arrangements. You can also phone 131020 for information on TA 2008/4 or 132861 for information on TA 2008/3. If in doubt, D'Ascenzo says, seek independent advice or ask for a Tax Office private ruling on your own arrangements.