Section 100A ruling – soft launch at TTI ‘Trust Intensive’ – ‘hard copy’ about Christmas time or end of lockdowns

The Commissioner had a ‘soft launch’ of his proposed his draft ruling on s100A of the 1936 Tax Act, This was at The Tax Institute’s recent Trusts Intensive. The following notes were taken by an attendee at this trust intensive.

1. The ruling will not be released until the new year, because the ATO does not want to place any additional burden on tax agents during the current lockdowns; or at Christmas-time, if the lockdowns end then.
2. It will be a ruling but there will also be a PCG about how the ATO will apply their compliance resources.
3. The ATO will not be applying the ruling to arrangements pre 1 July 2021.
4. For arrangements between 2014 and 1 July 2021 – the ATO will administer those consistent with the s 100A fact sheet.
5. The ATO will not apply compliance resources to pre 1 July 2021 arrangements unless they come across it in another review, or the arrangement crosses years after 1 July 2021 or assessments have not been lodged for earlier years.
6. Ruling will cover all of s 100A – not just “in the course of an ordinary family or commercial dealing”.
7. 1. The ATO says that it is an “anti-avoidance” measure.
   2. The ATO places some value on Prestige Motors and the comments in that decision.
   3. The ATO says “ordinary” if you consider the overt acts and the regular family or commercial objects.
   4. Presence of tax driven elements takes on much stronger impression.
   5. Section 100A may apply if one can conclude that the arrangement is driven by the tax elements and not the family arrangements
   6. Objective enquiry requires one to look at the whole of the arrangement.
   7. Illustrated by examples.
      1. Trust under a will where 100% of the income for a 15yo grandson who gets control at 25 and the income reinvested until he is 25. That is ok.
      2. Trust controlled by husband and wife with a wide class of beneficiaries. Each year H & W (similar marginal tax rates) presently entitled to all of the income 70/30. Funds support the lifestyle as a common pool. That is ok.
      3. Trust makes John (a family member) presently entitled to trust income. His present entitlement based on not having his income exceed a marginal tax rate. John works whilst also full time student. Unlikely to immediately call for his entitlement. He will see the PE build up and may call on it to help buy a house. He knows it is there, he could call it later. Absent other factors – okay.
      4. If change facts – Kate adult full time student. Entitlement determined by marginal tax rate threshold. Kate gives entitlement back to the trustee. That gifting then “attracts attention”. Not definitely 100A , requires further review.
      5. Family Trust – Mum and Dad and only child Robert beneficiaries. Dad part time admin, Mum surgeon. Robert full time student fully supported by parents and lives at home. Robert present entitlement to income. Robert shares income each year. Loan interest free to parents. Attracts attention and will result in ATO looking for additional facts. Loan without interest for unspecified time. Part of a course of conduct. Creates concern for ATO.

The notes are being shared on the basis that a) the ATO said they will make similar comments at other presentations later this year and b) ‘Chatham House rules’ did not apply to the Intensive.

[Tax Month – October 2021] 5.10.21 [Previous Tax Month]