New ATO draft guidance materials on section 100A and Division 7A

[RobynTax]

The ATO’s new draft guidance materials on the operation of section 100A, and Division 7A of Part III, of the ITAA 1936 were released on 23 February 2022.

The package of draft guidance materials consists of:
▪️ TR 2022/D1 — Income tax: s 100A reimbursement agreements

▪️ PCG 2022/D1 — Section 100A reimbursement agreements — ATO compliance approach

▪️ TA 2022/1 — Parents benefitting from the trust entitlement of their children over 18 years of age

▪️ TD 2022/D1 — Income tax:  Division 7A:  when will an unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’.

TaxVine 5 on 25 February by our Vice President, Marg Marshall, explains the new guidance and what it means for your clients.

In TaxVine 8 on 18 March 2022, I set out what The Tax Institute is doing in response to the ATO’s package of new draft guidance materials on section 100A and some of the feedback received from our members.

What are your reactions to the draft guidance? What do you see as the challenges and issues you will face when it comes to advising your clients on section 100A and Division 7A in light of the draft guidance? Keen to read your comments.

Regards

Robyn Jacobson, CTA
Senior Advocate
The Tax Institute

• This topic was modified 4 months ago by RobynTax. Reason: Included hyperlinks
• This topic was modified 4 months ago by RobynTax.
• This topic was modified 3 months, 2 weeks ago by RobynTax. Reason: Include TaxVine 8 preamble

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[John]

TA 2022/1 feels like a fairly serious shot across the bow. Might need to start putting that pocket money on loan terms  😆

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[RPD]

These rulings are a direct attack on established trust law. The trustee has the right to determine a distribution to any eligible beneficiary.

This money is then the property the beneficiary, who has the right to do whatever they want with the money – including gifting some or all of it back to anyone.

The Law Society must fight this attack on trusts, and not just be a quisling, patiently “explaining” the rulings to us dumb members.

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[John]

Perhaps revealing that the prospect of someone making a voluntary disclosure due to TA2022/1 was deemed so remote that apparently no one bothered to check the link:

https://www.ato.gov.au/General/Fix-a-mistake-or-amend-a-return/Make-a-voluntary-disclosure/

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[CameronBatterham]

Timothy Muro and David Boyar at Change GPS are running a campaign to Politicians to show how this is an attack on all middle-class small businesses owners. The Tax Institute should be making the same submissions.

The legislation was brought in by John Howard in 1978 to stop “Trust Stripping” arrangements where distributions were made to tax-exempt entities, where no money changed hands, and no tax was paid.

Not to ordinary family dealing or commercial dealings.

Politicians need to change legislation to define ordinary family dealing to include payments to adult children.

It should not be retrospective to 2015.

In addition, Accountants and Tax Agents should not have the threat of jail being a “Tax Promoter” by simply advising clients that distribution minutes be made in a certain way.

The last 2 points are most egregious.

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[RobynTax]

Hi Cameron

We are working with our National SME Technical Committee on the following:

• Developing case studies to demonstrate where, how and why many of the positions are impractical and have inconsistent policy outcomes
• Formulating workable solutions that achieve both policy intent and can be applied practically
• Seeking to work with not only the ATO but Government more broadly on the issue
• We need to go further than merely saying it is an ‘attack’ – we need the real case studies and we need the solutions – without either, Government will seek the advice from the ATO, and the ATO’s position has now been made public.

Regards

Robyn Jacobson, CTA
Senior Advocate
The Tax Institute

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[DavidJonavicius]

Today’s webinar was an excellent session and sensible approach taken by the TTI to build a productive case against some aspects of the ATO material.

Await informed guidance on “ordinary family dealing” rather than judging everything as an attack on taxpayers.

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[MareeEmery]

Thanks for today’s session – I must admit I’m in a bit of a spin.

I am having trouble reconciling the effects of the new drafts with the the family trust elections/family group provisions nor the meaning of “ordinary” family dealings. It would seem to me that perhaps arrangements within this more narrow premise of the family should be considered as ordinary and therefore exempt from the 100A provisions.

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[RobynTax]

Hi Maree

Thank you for joining today’s webinar.

As you will have heard during the webinar, we raised the issue of how s 100A interacts with the trust loss provisions in Schedule 2F to the ITAA 1936.

Importantly, the meaning of ‘family group’ for trust loss purposes has no application for s 100A purposes. Whether the meaning of ‘ordinary family or commercial dealing’ should or could align with the meaning of ‘family group’ is a matter for Treasury and would require a legislative amendment. It is not a matter for the ATO to limit the operation of s 100A to family groups where a family trust election has been made.

Regards

Robyn Jacobson, CTA
Senior Advocate
The Tax Institute

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[NickChancellor]

The bigger picture here is that effectively these pronouncements are making retrospective changes to treatments reasonably adopted by the profession in the absence of  any interpretation other than the original EM, and on top of that labeling the entire profession as criminal promoters and their clients  as tax cheats. What a dishonest way to achieve tax reform in relation to trusts. All this type of policy will do is chase people away from the profession (as has occurred in financial advice) and alienate clients from their tax agents. This is after all the profession did to support the government during the pandemic. The tax authorities are setting us up to be the fall guys for a broken tax system and the police men for an increasingly complex and ridiculous and uncertain set of rules. If anything the institute should threaten a tax agents strike over this rubbish.

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[MichelleMolam]

If currently an individual is requiring a company to be set up for a new business, would you still consider a trust to be the shareholder on the basis that distributions to a spouse are still okay as long as the funds are paid out?

If the professional profits allocation rules could potentially apply, would the answer be the same?

 

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[SandeepSingh]

Hi Robyn

Will the Q&As from the webinar be shared on this forum? Thank you.

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[JosephLee]

For the TTI submission re TR 2022/D1, the ATO may care to comment on the following:

• in reference to the common law principle of payment by way of set-off as established in the old English case [Re Harmony and Montague Tin and Copper Mining Company (1873) LR 8 Ch App 407] (Spargo’s case) and the ATO acknowledgment of the principle of set-off arrangements, having applied and cited it with approval in a wide number of Australian taxation and superannuation cases over the years (eg. MT 2050) – why set-off(s) of trust distributions appointed by the trustee of a trust to the concerned family member aged >18 against his/her housing deposit is, for the purposes of s100A 1TAA 1936, not an ordinary family or commercial dealing; and
• in respect of the concerned family member aged >18 (ie. of legal age) and assuming that he/she is not otherwise under legal disability, what the ATO understands by the word ‘consent’ and its interaction with ‘present entitlement’ under s95A(2) ITAA 1936. To be clear, if a trustee of a trust appoints trust net income to the concerned family member aged >18 (ie. he/she is presently entitled to Trust net income pursuant to the terms of a Trust Deed for a given year) and that family member decides that such distribution, for the time being, is best parked in their parents’ mortgage offset account (for instance, until such time they acquire property); would the concerned family member >18’s decision to do so causes the ATO to form a view that the Trustee’s appointment of income to that individual a sham/ineffective distribution for 100A ITAA 1936 purposes, by reason that the concerned family member aged >18 happen to be on a lower marginal tax rate than some of the other family members).

Drawing inspiration from recent world events, TR 2022/D1 is akin to an assault, an invasion on the profession insofar as proper, legal tax planning is concerned. I am hopeful that the draft will follow the fate of TR 2004/D25.

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