ATO update on trust reimbursement agreements

The ATO has provided an update on draft guidance relating to trust reimbursement agreements under s 100A of ITAA 1936.

The following draft guidance on s 100A trust reimbursement agreements was released for consultation in February 2022:

• Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements

• Draft Practical Compliance Guideline PCG 2022/D1 Section 100A reimbursement agreements — ATO compliance approach

• Draft Taxation Determination TD 2022/D1 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of “financial accommodation”?

The ATO has clarified that the draft guidance will not have a retrospective element. It will not be pursuing taxpayers that entered into arrangements between 1 July 2014 and 30 June 2022 who concluded in good faith that s 100A did not apply to them based on the previous 2014 guidance. The ATO has also noted that it is not concerned about circumstances where a family member receives profits distributed from a family business and chooses to reinvest the profits into the business.

Section 100A is an anti-avoidance rule that broadly targets arrangements where a beneficiary is presently entitled to trust income, but the economic benefit is received by a person other than that beneficiary and has the purpose of reducing any person’s tax liability. If s 100A applies, a deeming rule operates such that the beneficiary will not be considered presently entitled to the diverted income, but instead, the trustee is liable to tax at the top marginal tax rate.

Ensuring you get trust distributions right is a crucial step each year as part of your obligations as a trustee. Please reach out if you wish to speak with us directly about your current year's situation.

Source: ATO, Update on draft guidance on trust reimbursement agreements and unpaid present entitlements,5 May 2022, accessed 5 May 2022.