Arnold Bloch Leibler’s tax team has issued a bulletin to our network of tax advisers, alerting them to potential risks that might arise for clients from a suite of documents released this week by the Australian Tax Office.
The documents, alongside a Taxation Alert, relate to Section 100A and Division 7A of the Income Tax Assessment Act 1936, which focus on arrangements commonly seen in family groups and private wealth.
Section 100A is an anti-avoidance provision, introduced in March 1979, that applies to certain trust distributions. The newly released documents set out the ATO’s view on the scope of s 100A, with necessary cross-referencing to other ATO documents. The content is illustrated by examples grouped around different coloured ‘risk zone’ scenarios.
Division 7A operates to ensure private companies are not able to make tax-free distributions of profits to shareholders or their associates in the form of payments, loans or forgiven debts.
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Over a whopping 30 pages, the draft determination describes when a private company provides financial accommodation in circumstances where the company has been made presently entitled to income of a trust and either:
- the entitlement remains unpaid; or
- the trustee sets aside an amount from the main trust fund and holds it on a new separate trust (or sub-trust) for the exclusive benefit of the private company.
While the documents covered in our bulletin remain in draft form and we will continue to engage with the ATO to improve them, we don’t expect the final versions to differ markedly.
Our overarching concern is that key parts of the guidance (e.g. the treatment of streamed taxable capital gains and beneficiaries with losses) smacks of ATO overreach and is likely to raise significant concerns among taxpayers and their advisors.
We encourage you to contact us if the material raises questions or concerns for you or your clients.
