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A sequence of documents will be required to avoid raising red flags with the ATO, says Change GPS.
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S100A rules to ‘double the price’ of trust distribution work
07 February 2023
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The ATO ruling on s100A will “at least double” the price accountants have to charge for doing annual trust distribution work and they will need to get better at keeping file notes or risk a “world of hurt”, according to practice software specialist Change GPS.
Executive director Tim Munro said the need for extra documentation, confirmed by ATO assistant commissioner Chris Ryan on a Change GPS webinar yesterday, meant some clients might baulk at the cost but accountants had little choice.
“Accountants can’t stick their heads in the sand — they need to acknowledge the landscape has changed, and they need to advise their clients about that,” he said.
“It’s going to at least double the price for doing annual trust distribution resolution work and some clients don’t want to pay for that.
“Some accountants might choose to do nothing, business as usual.
“The problem with that point of view is the ATO is saying you’ve got to keep contemporaneous documents. If they do have an audit, and they’ve got to go back and create documents, then the ATO will say you’ve been backdating, we’re not going to rely on those documents.
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“If it comes to bite them down the track they’re going to find themselves in a world of hurt.”
Mr Munro said documentation would be needed to address the issue of reimbursement agreements that could trigger s100A and another potential pitfall highlighted by the Owies case last year, which confirmed that trustees had to consider the circumstances of beneficiaries.
He said documents would be required to show that trustees had inquired about the needs of beneficiaries and considered them. The end-of-financial-year trust distribution resolution would have to be followed up after 30 June by a payment request form for the beneficiaries to instruct the trustees about how their distribution should be paid.
“It’s not just go to 30 June and sign one document, now you’ve got a series of documents in an order to give yourself the best protection.”
He said accountants would need to lift their game when it came to keeping records about decisions and move more into line with the habits of financial planners.
“Accountants are nowhere near as good in keeping notes and records,” he said.
“For years, many legal advisers for trusts and high-level tax experts have said that people need to keep better records about decisions and why things are happening to trusts.”
The ATO rulings required “contemporaneous documentation” and that level of proof was how to reduce risk. He said Change GPS was putting together a document pack for accountants but along with many in the industry, he thought the ATO was stretching the application of s100A.
“When these laws were introduced in 1979 they were introduced to focus on trust stripping … I think the ATO is totally overreading this section.
“It doesn’t apply to ordinary family or commercial arrangements, specifically to say if you’ve got dealings within a family that’s not the point of this.
“It wasn’t designed to cover when people in the family get the money, then use it however they see fit for family members.
“There’s a feeling out there that the ATO perhaps doesn’t understand what an ordinary commercial or normally family situation would be.”
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