*** Update December 2022 – Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements has now been finalised by the ATO.
The following is not taxation advice and we recommend you either contact us or speak with your tax agent for more information.
The ATO has recently released guidance on how it could potentially seek to apply Section 100A.
Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements sets out the Commissioner of Taxation’s view on when the entitlement of a beneficiary (not under a legal disability) to trust income arises out of a reimbursement agreement.
Put in very simple terms, 100A can apply where the trustee distributes income of the trust to someone that is on a lower tax rate however, the funds are held or ultimate received by someone on a higher tax rate. Hence the anti-avoidance nature of the transaction as it is only being undertaken to secure a lower tax rate.
While many Taxpayers may believe they are outside the period of amendment, think again. Section 100A is an anti avoidance measure and therefore the ATO have an unlimited period of amendment if they believe that it applies to you.
A typical situation where 100A can potentially apply:
Example 1: The trustee distributes income to an Adult child who gifts the funds back to the trustee or to mum & dad. This may be either by way of journal entry or by paying out the distribution and transferring cash to mum & or dad.
Example 2: The trustee distributes income (in particular franked distributions) to a non-resident beneficiary who diverts the income back to the controller of the trust.
Example 3: The trustee distributes income to tax efficient beneficiaries who are unware of their entitlement. The entitlement remains unpaid and the controller of the trust uses those funds for their own benefit. Alternatively it may apply where the funds are held by the trustee.
Example 4: The trustee makes a distribution to a charity (for example a private school) and there is an agreement that the school will provide schooling for a child of the controller (usually mum & dad).
Example 5: there are many more potential situations.
So where to from here?
The outcome of the ongoing appeal of the Federal Court’s decision in Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation  FCA 619 may finally put to reset the breadth of section 100A and provide further clarity on the areas of uncertainty. However, its a wait and see approach noting the ATO’s current draft view which is unlikely to be finalised until the Guardian decision is settled.