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ATO’s new guidance for taxpayers with trusts

Yesterday the ATO released new guidance materials on the application and operation of section 100A (s 100A) and Division 7A (Div 7A) of Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Section 100A applies only to arrangements where trust income is paid to or applied on behalf of a beneficiary.

Tax Payer Alert 2022/1 specifically the ATO is looking into arrangements where trust income is appointed between members of the family group, but only to access tax-free thresholds and lower marginal tax rates of family members.

In practice, resolutions are passed to make other family members presently entitled to a share of the income of the trust, however these amounts are not paid to family members, but rather paid to other family members or applied against beneficiary loan accounts.

Historically this has been done on the basis that children or family members are required to repay their parents for expenses incurred in relation to their upbringing.

The ATO is concerned that taxpayers are entering into contemporaneous arrangements to avoid tax, and using the children's entitlement to pay for expenses that would ordinarily be paid by the parents.

If you are concerned, think this might apply to you or have any questions?

Please remember this is currently just guidance and has not progressed any further. Given the new guidelines, it is important to consider these arrangements, and review similar arrangements.

As always please feel free to get in contact if you have any questions.

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