INTHEBLACK July 2020 - Page 11



GET SMART
// FAS T F O C U S

STORY GARY ANDERS
AT A G L A N C E
Section 100A is a
40-year-old provision
under the Income Tax
Assessment Act. It
was enacted in 1978
in a bid to discourage
tax avoidance.

The ATO is now
reviewing section
100A to address some
of its complexities,
and to help increase
tax compliance.
It was enacted as legislation in 1978 as an
integrity measure to stamp out tax avoidance
schemes rampant at the time (known as
“bottom of the harbour” schemes). These
complex schemes used trust structures to own
companies, then strip out all of the assets of
those companies via distributions, leaving them
unable to pay their tax liabilities.
The ATO can apply section 100A if it considers
a trust agreement or arrangement as outside the
bounds of what it deems to be “ordinary family or
commercial dealings”, and distributions are regarded
as being part of a “reimbursement agreement”.
A reimbursement agreement generally involves
making someone presently entitled to trust
income in circumstances where both someone
other than the entitled beneficiary actually
benefits from that income, and at least one party
enters into the agreement for purposes that
include getting a tax benefit.
A benefit includes the payment or loan of
money, the transfer of property, the provision
of services or other benefits, or the release,
abandonment, failure to demand payment,
or postponed payment of a debt.
DISCRETIONARY D
TRUSTS IN THE
ATO’S SPOTLIGHT
iscretionary trust structures continue to
be widely used by many families around
Australia, both for the purposes of holding
assets and distributing income to their beneficiaries.
Discretionary trusts are so called because the
trustee has sole discretion to determine whether
any assets or income will be distributed, which
beneficiaries will receive distributions, and how
much will be received.
However, discretionary trusts are on the Australian
Taxation Office’s (ATO) radar as the regulator steps
up its efforts to clamp down on tax avoidance.
AS T H E AT O R E N E W S I T S F O C U S O N TA X AV O I D A N C E ,
S E C T I O N 1 00A , A 40 -Y E A R - O L D P R O V I S I O N I N T H E
I N C O M E TA X AS S E S S M E N T A C T, I S U N D E R R E V I E W.
16 ITB July 2020
BOTTOM OF THE HARBOUR
Under review by the ATO is a 40-year-old provision
contained in the Income Tax Assessment Act 1936,
known as section 100A.
FAMILY DISTRIBUTIONS
The ATO is also focusing on activities where
trustees distribute trust income to beneficiaries
paying low or no tax (including a non-working
spouse or adult children studying at university)
with the intent of reducing the tax liabilities of
a primary income earner and other trust
beneficiaries in higher tax brackets.
Section 100A would additionally apply where
distributions are paid to beneficiaries with existing
tax losses, to those who have excess deductions
or capital losses, or to those with an unapplied
net capital loss.
If section 100A is applied by the ATO, a trustee
is liable to pay tax on the trust’s income at the
top marginal tax rate of 45 per cent, which is
normally applicable for income levels of
A$180,001 and over.
There is no statute of limitations on section
100A. While taxpayers are ordinarily required to
keep their relevant tax record for five years from
the date they lodge their return, section 100A has
an unlimited application period.
LISTEN
UP!
This story is available as
an audiocast. To listen,
visit: cpaaustralia.com.au/
section100A
IF SECTION 100A
IS APPLIED BY THE
ATO, A TRUSTEE IS
LIABLE TO PAY TAX
ON THE TRUST’S
INCOME AT THE TOP
MARGINAL TAX RATE
OF 45 PER CENT,
WHICH IS NORMALLY
APPLICABLE FOR
INCOME LEVELS OF
A$180,001 AND OVER.
100A DRAFT RULING
The ATO has been working on a draft ruling
on the use of section 100A. The draft sets out
the Tax Commissioner’s preliminary views on the
exclusions from a reimbursement agreement, such
as agreements not entered into with a purpose of
eliminating or reducing someone’s income tax.
The ruling is also expected to provide more
clarity around the ATO’s definition of ordinary
family or commercial dealings.
“Whether a particular agreement constitutes
an ‘ordinary family or commercial dealing’
[which isn’t defined], and is therefore not a
reimbursement agreement for the purposes of
section 100A, will depend on all of the relevant
facts,” the ATO notes on its website. “The courts
have made it clear that the exclusion must be
considered having regard to all of the steps
comprising the reimbursement agreement – not
merely components of it.
“An agreement won’t necessarily be
considered to have been entered into in the
course of an ordinary family dealing, merely
because all of the entities involved are members
of the same ‘family group’.”
Greg Nielsen, tax partner at Pitcher Partners,
says the integrity aspect of section 100A comes
in when an arrangement is designed so a person
subject to tax is paying less tax than another
person actually receiving the benefit.
“It could involve property being transferred out
to someone for a minimal consideration, or
amounts of cash may have been loaned out to that
party, or where the underlying property or benefit
is retained by the trust,” says Nielsen, who is also
CPA Australia’s representative on the ATO’s
Private Groups Stewardship Group.
“Under those scenarios, whether it’s a person
who has had some value transferred out to them
or to the trust, what’s being targeted is if the
person would have paid a higher rate of tax if
they had legally been subject to assessment on
those amounts.”
The ATO has not given a completion time for
its draft ruling, and notes on its public advice
and guidance program that it is currently focused
on providing support around the tax and
superannuation issues arising from the impact
of COVID-19.
intheblack.com July 2020 17

Paperturn



Powered by


Full screen Click to read
Paperturn flip book
Search
Overview
Download as PDF
Print
Shopping cart
Full screen
Exit full screen