Section 100A- Revised Trust Reimbursement Agreement Risks

The Australian Taxation Office (ATO) shortly released the new regime that intends to trust Reimbursement Agreement Risks under Section 100A. The revised guidance can help all the tax professionals and trustees to manage their obligations for June 30, 2022, under the Income Tax Assessment Act 1936.

As a rule, Section 100A is an income tax anti-avoidance providence that applies to all the taxpayers at a time when a trust beneficiary’s present entitlement is required to share the income of the trust estate according to the reimbursement agreement plan.

  1. The agreement says:

    • Involve a benefit being provided to another beneficiary
    • The benefit receiver will pay a higher tax rate than the other beneficiary. Purposely, one has to pay less income tax.

    Numerous examples can help to understand the ATO’s view regarding “ordinary family” and “commercial dealings” and more instances where it may or may not apply.

    About the ATO’s 2014 guidance that can assist regarding when section 100A may or may not apply. The following needs to be considered:

    • Maintain good records for evidence purposes.
    • Trustees who think section 100A may apply to their affairs should consult their registered tax professional for advice.
    • Trustees can also apply for a private ruling or contact the ATO using the process set out in the draft practical compliance guidelines.

    Ms Clarke states that the ATO has not ramped up the specific compliance activities review application of section 100A. But if the risk is identified under the review program of section 100 A, then they may review a taxpayer’s arrangement.

    “I also want to reassure the community – we don’t have a retrospective change to our interpretation of section 100A. We stand by our 2014 guidance for this interim period” Ms Clarke said.

    She has also acknowledged that the significant result is shown in its draft regarding the general advice and guidance relevant to trust reimbursement agreements and present unpaid entitlements.

    In response to the level of community interest, the ATO extends the public consultation period for the guidance, which ended on 29 April 2022. The ATO is now considering the submissions received on this matter.

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