Draft PCG 2022/D1: Section 100A

Description and compliance approach: 

The ATO will not dedicate compliance resources to consider the application of Section 100A to white zone arrangements.

ATO factual examples: 

The white zone covers arrangements entered into before 1 July 2014 unless it is a blue or red zone arrangement and the following apply:

• the ATO is otherwise considering your income tax affairs for those relevant years;
• the arrangement continues after 1 July 2014;
• the trust and beneficiary tax returns that were required to be lodged for the relevant years were not lodged before 1 July 2017. 

Description and compliance approach: 

The ATO will not dedicate compliance resources to consider the application of Section 100A to green zone arrangements, other than to confirm that the features of the relevant scenario are present in the taxpayer’s circumstances.

ATO factual examples:

• An individual is made presently entitled to trust income and the funds are mixed with their spouse’s funds, or used for joint family purposes and/or used to benefit a dependent.
• Arrangements that are relevantly identical to an example in TR 2022/D1 which concludes that the arrangement would likely be entered into in the course of ordinary family or commercial dealing. TR 2022/D1 is discussed on our website and can be found here.
• A beneficiary that is an individual or a private company is made presently entitled to income of the trust estate and there is a 'trustee retention of funds'.

Description and compliance approach: 

The ATO may review arrangements in the blue zone and seek to better understand these arrangements including whether Section 100A applies.

ATO factual examples: 

Arrangements that do not fall within the white zone, green zone or red zone and may include one or more of the following features:

•  The beneficiary makes a gift of their entitlement or an associated amount receivable from the trust.
• The beneficiary disclaims their entitlement or forgives or releases the trustee from its obligation to pay their trust entitlement or an associated amount receivable from the trust.
• The income of the trust estate is less than the net income because of the trustee exercising a power, or the deed being amended, to affect the quantum of the trust estate.
• A beneficiary’s trust entitlement is satisfied by payments that are sourced from that beneficiary, or a beneficiary’s trust entitlement has been made subject to a loan agreement and the repayments of that loan are sourced from payments or loans from the beneficiary.
• Arrangements where one or more features are explicable by a tax avoidance purpose.

Description and compliance approach:

Red zone arrangements will attract the ATO’s attention and the ATO will dedicate compliance resources to consider the application of Section 100A.

ATO factual examples:

• Arrangements where the presently entitled beneficiary lends or gifts some or all of their entitlement to another party.
• Arrangements where trust income is returned to the trust by the beneficiary in the form of assessable income.
• Arrangements where the presently entitled beneficiary is issued units by the trustee (or related trust) and the amount owed for the units is set-off against the beneficiary's entitlement.

• Arrangements where the share of net income included in a beneficiary's assessable income is significantly more than the beneficiary's entitlement.

• Arrangements where the presently entitled beneficiary has losses.

• Arrangements subject to a Taxpayer Alert where the Commissioner expresses a concern that s 100A applies.  Links to relevant Taxpayer Alerts can be found here:

  • TA 2005/1 - Profit washing scheme using a trust and loss entity (Published on 2 May 2005)

  • TA 2008/15 - Profit washing scheme using a trust and a loss entity (Published on 25 June 2008)

  • TA 2008/16 - Liquidation of entities to avoid the payment of tax liability (Published on 25 June 2008)

  • TA 2011/1 - Loans to members of companies limited by guarantee and the operation of Divis... (Published on 15 February 2011)

  • TA 2013/1 - Arrangements to exploit mismatches between trust and taxable income (Published on 12 August 2013)

  • TA 2015/4 - Accessing business profits through an interposed partnership with a private c... (Published on 12 November 2015)

  • TA 2016/12 - Trust income reduction arrangements (Published on 17 November 2016)

  • TA 2022/1 - Parents benefitting from the trust entitlements of their children over 18 yea... (Published on 23 February 2022). Our summary of TA 2022/1 can be found here.