A new ATO draft tax ruling affects trust distributions – Draft Ruling TR 2022/D1.
The draft ruling sets out the ATO’s view on how section 100A of the Tax Act, enacted in 1979, operates.
Section 100A is an anti-avoidance provision that applies where a beneficiary has become entitled to trust income arising out of a reimbursement agreement or arising “by reason of any act, transaction or circumstance that occurred in connection with, or as a result of, a reimbursement agreement”. In such circumstances, the subsection deems the beneficiary not to be, and never to have been, entitled to the share of the income.
The draft ruling sets out the Tax Commissioner’s preliminary views on exclusions from reimbursement agreements for:
- agreements not entered into with a purpose of eliminating or reducing someone’s income tax, and
- agreements entered into in the course of ordinary family or commercial dealings.
We note:
- A court case has fed into the ATO views. The Federal Court handed down its decision on Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619 in December. The Tax Commissioner may appeal the decision to the Full Federal Court, which potentially could see the wide interpretation of a reimbursement agreement narrowed.
- The draft ruling is in a feedback phase and likely to receive extensive comments.
- The ruling states it will not apply to entitlements arising before 1 July 2022 held on existing sub-trust arrangements nor sub-trust arrangements starting on or after 1 July 2022 for an entitlement arising before that date.
We are watching developments closely and will update you once there is more certainty on the final view of the ATO.