Tax Alert - Section 100A guidance now finalised

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Tax Alert - Section 100A guidance now finalised

Lowe Lippmann Chartered Accountants

ATO Guidance targeting trust reimbursement agreements now finalised

The Australian Taxation Office (ATO) has recently finalised its guidance in relation to trust distributions and “reimbursement agreements”. This guidance impacts all clients with family or discretionary trusts.

The final guidance contained within Taxation Ruling TR 2022/4 Income tax: Section 100A reimbursement agreements and Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – ATO compliance approach has been developed to support trustees and their advisors, who have been requesting clearer guidance to help them manage their tax obligations.

The ATO guidance has been finalised following an extended consultation period with the tax community, and recommended changes have been incorporated based on this feedback.

The ATO focus surrounding Section 100A relates to trust distributions made to beneficiaries, in order to achieve a tax advantage where the funds relating to the distributions are not paid out to a beneficiary, or are in some way reimbursed back to the trustee or other parties.

Whilst these final documents do not significantly depart from the draft versions released in March 2022, which gave rise to much debate on the ATO’s renewed focus on trust arrangements (see our previous Tax Alert here), there are some notable changes (see below) and they do provide additional examples which provide further clarity for trustees and advisers as to what trust arrangements the ATO will focus their attention on.

What are the notable changes?

The finalised guidance includes a few changes to the previous draft documents, including the abolition of the “blue zone”, an expansion of “green zone scenarios” concerning distributions, in particular providing a two-year timeframe to pay distributions and the broadening of individuals/entities to whom distributions can be made with less stringent requirements to pay.

However, it is unfortunate that the final guidance still applies retrospectively to trust entitlements that arose prior to 1 July 2022 in certain circumstances.

We note that the ATO has confirmed it will not allocate any compliance resources to review any trust arrangements entered into before 1 July 2014 which are considered to be “low risk”.

What are the next steps?

Given the potential retrospective nature of this ruling, reviews of previous income years distributions may be necessary. Furthermore, careful consideration of the appointment of trust income for the year ending 30 June 2023 and beyond will need to be adopted.

Lowe Lippmann intends to provide further guidance on managing trust distributions by explaining the most salient issues in the new year once the full implications of these changes are fully considered.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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