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But the Tax Office maintains that most have nothing to fear and denies it has stepped beyond its remit.
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ATO admits 100A draft challenges longstanding practices
06 May 2022
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Most small businesses using trusts will avoid attention from section 100A, the ATO said, even though it admitted its draft ruling calls into question “longstanding” practices.
It has also responded to its harshest critics by denying it has stepped beyond its remit to “make law” or that its compliance actions will be retrospective.
However the ATO admitted its draft had “unsettled” tax professionals and there had been “significant interest”.
“We received feedback through a range of channels and there have been more than 25 groups that have lodged submissions commenting on the draft guidance,” an ATO spokesperson said.
They include professional bodies, from CPA Australia to the Tax Institute and NTAA, as well as prominent accounting practices such as BDO.
But the ATO denied the issue had garnered an outsize response, despite extending the submission deadline by three weeks.
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“The number of submissions is in the vicinity of what we would expect for any significant public advice and guidance we release for consultation,” the ATO said.
It said one theme emerging was the need for more low-risk, or “green zone”, examples and it would aim for greater certainty by providing these in the final guidance.
It also pledged to discuss its initial response to the feedback with key stakeholders prior to finalising the advice and guidance.
“The ATO is aware that the guidance – which has been long requested by the tax adviser community – has unsettled some in that community because it calls into question some practices which have been relatively longstanding,” ATO deputy commissioner Louise Clarke said.
“The vast majority of small businesses operating through a trust are not operating in a way that will attract section 100A. A distribution to an adult child who has a low marginal tax rate will not attract section 100A where they simply receive or enjoy the benefit of their distribution.”
Ms Clarke said the section would apply only where a distribution was made under an agreement purposely designed to pay less income tax.
“For example, where a full-time student receives an entitlement from a trust under an arrangement where they agree to immediately gift the entitlement back to the trustee,” she said.
“The ATO’s position is that if the beneficiary of the trust gets the benefit, 100A has no role to play. The ATO is not concerned about ordinary family trusts where the relevant family members benefit from the distributions.”
Ms Clarke said the ATO was not concerned either when profits from a family business were distributed to family members who worked in the management of the business, and that family member chose to reinvest the profits in the business.
She also denied that the ATO would pursue taxpayers who concluded – in good faith – that section 100A did not apply to them based on the previous 2014 guidance, and subsequently entered into an arrangement.
“I want to reassure the community – we won’t have a retrospective element. We stand by our 2014 guidance for this interim period,” Ms Clarke said.
“The ATO does not make law.
“We have not changed section 100A; 100A remains as it always has been. What we have done is publish what is at this stage draft guidance for consultation as to how we think the law applies.”
The ATO said all submissions would be carefully considered and a compendium of our responses to the feedback would be published.
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