At The Tax Institute’s March 2019 National Convention, in Hobart, Michael Butler CTA, of the law firm: Finlaysons, delivered his paper entitled: Section 100A: When is a dealing between members of a family not in the course of ordinary family dealing?
This paper will examine a question that is simple to ask, but potentially difficult to answer:
When will an agreement, arrangement or understanding—between the members of a family—not be an “ordinary family dealing” for the purposes of section 100A of the Income Tax Assessment Act 1936 (ITAA 1936)?
Section 100A was enacted in 1978, over 40 years ago, as part of a package of anti-tax avoidance measures introduced by the then Federal Treasurer, the Hon. John Howard MP. The Treasurer’s Press Release, the Second Reading Speech and the Explanatory Memorandum made very clear that section 100A was designed to counter a specific form of “trust stripping”. Subsequent judicial comments have indicated, however, that section 100A potentially has a broader reach.
Nevertheless, section 100A does not apply to:
… an agreement, arrangement or understanding entered into in the course of ordinary family or commercial dealing.
The intention of this paper is to identify when dealings between members of a family are not in the course of “ordinary family dealing”. As will be seen, this is by no means a straight forward task!
Although reference is made to the “predication” and “ordinary business or family dealing” tests laid down in the late 1950s by Lord Denning in Newton & Ors. v FCT, the assumption such dealings can be readily identified in 2019 is open to serious challenge. Despite many tax advisors and administrators believing they know—or at least having a view as to—what such dealings involve, there appears to be considerable disagreement as to precisely how such dealings should be defined.
In the last few years, the Commissioner has been examining whether certain transactions between beneficiaries of family trusts, the trustee of those trusts, and other family members, are ordinary dealings or, instead, are potentially subject to the application of section 100A. The Commissioner has indicated a draft Public Ruling will be issued on the topic in the near future—although hopefully not before this paper is delivered on March 15, 2019!
The purpose of this paper is to promote some robust discussion.
It will therefore be argued below that—given the way in which family business and investment structures have developed over the last 40 years—a significant number of dealings that regularly take place in 2019 between family members—in relation to private companies and private trusts—should be treated as “ordinary family dealings” for section 100A purposes.