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The range of examples in the ATO trust ruling fails to reflect Australian cultural reality, says Elinor Kasapidis.
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100A guidance rides roughshod over diversity, says CPA Australia
13 May 2022
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ATO guidance on trust distributions fails to recognise Australia’s diversity and the different family arrangements common among various ethnic groups, said the senior manager of tax policy at CPA Australia.
Ms Kasapidis, speaking on the latest Accountants Daily podcast, said the section 100A draft ruling issued in February is simply too narrow in scope to reflect Australian society while examples of low-risk behaviour exclude most possibilities.
“The problem is we have a really diverse community with lots of different kinds of cultural arrangements, social arrangements, familial arrangements, and the ATO has sort of put this very broad statement out there,” Ms Kasapidis said.
“But how does it apply to my clients’ situations and their family?”
Ms Kasapidis said Australia’s diverse society meant there was a broad range of family arrangements that the ATO guidance simply ignored.
“In some cultures, there’s no interest charged. For things like contributing towards property purchases, quite often in certain communities it’s very common that parents or others will contribute,” Ms Kasapidis said.
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“So there are lots of examples where, perhaps from a more Australian ethnocentric point of view, that might not be acceptable, but it’s a really common arrangement and that needs to be recognised.”
She said the colour-coded risk zones in the guidance, which use white, green, blue and red to indicate increasing degrees of ATO concern, deliberately departed from the green-orange-red system used elsewhere and left too many questions unanswered.
“It’s not quite the traffic light system – and that was apparently quite intentional. The reason there’s no orange zone is because they don’t necessarily want to say everything that isn’t green or red or white is automatically medium-risk. It has caused a lot of confusion,” Ms Kasapidis said.
“So the white zone is if you follow the 2014 guidelines, you’re okay, but no one really knew about them and it was difficult to follow… so it’s highly unlikely that many people will satisfy that.
“With the green zone, there are very simple arrangements, very tight parameters. And therefore, once again, to get that green tick to say you can go to sleep at night and not worry about the ATO, it’s very, very, very narrow.
“The red zone is clearly around egregious arrangements, washing machines, that sort of thing. So there really has to be that strong intent and doing very much an egregious tax planning sort of arrangement.
“Everything else is blue zone and that’s really been the challenge because things like, if you give it to an adult child who is not in the management of the business, or isn’t in control of the trust, you’re in the blue zone no matter what you do.
“So there are things like with loans or offsets – things that are very commonplace – what do you do, because all of a sudden it’s all blue zone.
“And therefore, the ATO really needs to come out and say, you know, these are the kinds of arrangements that might be light blue, they’re almost green.”
Ms Kasapidis said it would take time before the tax community had confidence in how the ATO would respond to different situations.
“There are words and there are actions. And at the end of the day, because a lot of their focus is on distributions from the first of July this year, it will be a year or two before we really see how the ATO is managing this market and how they are responding,” Ms Kasapidis said.
“This is the beginning of the conversation because a lot of people have put to the ATO that, hey, actually, your narrow definition doesn’t even recognise a lot of the variants and different ways that families operate in or businesses operate in.”
The latest Accountants Daily podcast will be available on the website on Friday (13 May).
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