The Australian Taxation Office (ATO) has recently issued a Taxpayer Alert and Public guidance on Family (Discretionary) Trust distributions with particular focus on those distributions to adult children and other family members. Please refer to the below.
Taxpayer Alert: Parents benefitting from the trust entitlements
The ATO has issued TA 2022/1 Parents benefitting from the trust entitlements of their children over 18 years of age. It sets out the ATO’s concerns relating to arrangements in which adult children of the controller of a discretionary trust are made presently entitled to trust income in circumstances where those children are not intended to retain any benefit with respect to that income and the arrangements are predicated on avoiding tax.
Tax Ruling on section 100A reimbursement agreements
Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements (previously issued as draft Taxation Ruling TR 2022/D1). Specifically, it provides the Commissioner’s view on key elements of s100A including what is: a purpose of eliminating or reducing someone’s income tax; an agreement, arrangement or understanding entered into in the course of ordinary family; a “commercial dealing”. The ATO’s compliance approach to s 100A reimbursement agreements is outlined in the accompanying companion product. Practical Compliance Guideline PCG 2022/2 s 100A reimbursement agreements – ATO compliance approach (previously issued as draft PCG 2022/D1).
TD on unpaid present entitlements
The ATO released TD 2022/11. It describes when a private company provides “financial accommodation” within the meaning of s 109D of the ITAA 1936 where that company is made presently entitled to income of a trust and either that entitlement remains unpaid, or the trustee sets aside an amount from the main trust and holds it on a new separate trust for the private company beneficiary. It also clarifies the ATO’s proposed compliance approach to the issue and provides examples to ensure that an entitlement does not cause a deemed dividend to arise under Div 7A.
More information with the ATO here.