WHAT?
The Australian Taxation Office (“ATO”) has recently issued draft guidance that sets out the ATO’s new compliance approach with respect to certain kinds of trust distributions and “reimbursement agreements”. The relevant legislation is Section 100A of the Income Tax Assessment Act 1936 (“100A”). Many commentators have noted that the ATO is applying this Section in a new way that was never intended by legislators when it was originally introduced over 40 years ago.
The ATO’s focus is on trust distributions made to beneficiaries in a manner that achieves certain tax advantages, and where the funds relating to the distributions are not paid out to a beneficiary or are in some way reimbursed by the beneficiary back to the trustee or other parties.
WILL IT AFFECT ME?
The ATO’s new guidance is set to invalidate many commonly made trust distributions, including distributions to adult children, grandparents, and even bucket companies. It will challenge some traditional family trust distribution strategies and will impact decisions that must be made in relation to trustee resolutions as early as 30 June 2022.
WILL THE USUAL TWO- OR FOUR-YEAR AMENDMENT PERIOD APPLY?
The guidance is set to have effect from distributions as far back as 30 June 2014 – which includes years that would normally be outside of the ATO’s amendment window. The issue is that 100A has an unlimited review period, and as such, the ATO is effectively allowed to amend returns as far back as they would like if this provision is found to be applicable to a taxpayer.
WHAT NEXT?
While this guidance is still in draft form, and subject to further consultation by accounting and legal industry bodies, this guidance has been under development by the ATO for many years. Thus, there is a risk that the guidance will not change much in any final version.
We will continue to watch how the guidance develops and keep you informed of further developments. Furthermore, we will discuss this matter with you before 30 June 2022 as part of our year end planning to ensure that you have sound distribution resolutions in light of this new guidance.
NEED HELP?
As always we are here to help!
Want more information?
If you require any assistance with the process or would like further clarification, please contact our team on (07) 3879 3303.