ATO finalises s100A guidelines for how it will police trust distributions

The Australian Taxation Office (ATO) has finalised its guidance on how it intends to police compliance with anti-avoidance provisions related to distributions from trusts that may require consultation with both accountants and lawyers, according to CPA Australia.

Trusts are commonly used to structure business affairs and the ATO has spent much of the past year finalising its views on what kinds of transactions involving trusts and beneficiaries might cause them to poke and prod a bit further.

Back in February, the release of the ATO’s draft guidance on section 100A prompted considerable concern among tax practitioners. The ATO subsequently extended the consultation period on the new guidance and the previous federal government said it would seek to provide “certainty” to business operators that use family trusts.

“The scope of arrangements involving trust distributions for which section 100A of the Income Tax Assessment Act 1936 may be relevant is also broad,” the finalised ATO guidelines say.

“We therefore recognise the importance of explaining our compliance approach when considering the application of section 100A.”

The finalised guidance from the tax office sets out four categories of trust distribution issues that have been colour-coded — the colours are white, green, blue and red — to match the level of risk the ATO believes certain arrangements present.

White zone matters are seen as low risk, for example, and unlikely to attract compliance activities from the tax office.

The green, blue and red zone categories denote an increase in both complexity and the likelihood that trust arrangements are being used to dodge a higher tax rate on income.

Graphics illustrating the kinds of arrangements the tax office is likely to see as problematic are provided to explain key concepts to business owners and their advisers.

CPA Australia’s senior manager of tax policy Elinor Kasapidis tells SmartCompany the accounting body welcomes the finalisation of the guidelines by the revenue authority, noting that the professional body had been involved in consultation with the tax office to help refine the guidance.

“Practitioners now have more clarity about the tax office’s view on this complex legal area. Clients and their advisors will be better informed thanks to this new guidance,” she said.

One of the challenges businesses operating with trust structures face is that arrangements can be complex. There might be a need, Kasapidis says, for a business to go beyond its regular accountant to grapple with a tricky tax matter.

“The ATO is looking closely at trusts. Trusts are popular but can be legally complex. Clients often rely on accountants rather than lawyers when setting up and managing trusts,” she said. 

“The ATO wants to ensure beneficiaries are getting the benefit of the distribution. Where there is uncertainty, practitioners may wish to encourage their clients to seek specialist advice or speak to a lawyer.”

More information about the application of section 100A is available on the ATO website here.