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ATO finalises guidance on trust reimbursement agreements

Last updated 7 December 2022

The Australian Taxation Office (ATO) has finalised its guidance in relation to reimbursement agreements where section 100A of the Income Tax Assessment Act 1936 may apply.

ATO Deputy Commissioner Louise Clarke said the guidance has been developed to support trustees and their advisors, who have been requesting clearer guidance to help them manage their tax obligations.

'Section 100A is an anti-avoidance rule, so our guidance is firstly about ensuring that those structuring their affairs to avoid their tax obligations are held to account, as the community would expect. But it also provides confidence and guidance to those who legitimately use trusts in their financial affairs, but are concerned that they might inadvertently trigger Section 100A. Specifically, it addresses 'reimbursement agreements' where, for a purpose of avoiding tax, an entity is provided a trust distribution but someone else actually benefits from that distribution.'

Ms Clarke noted that the vast majority of small businesses operating through a trust will not be affected.

'A distribution to an adult child who has a low marginal tax rate will not attract section 100A where they simply receive or otherwise enjoy the benefit of their distribution.'

The ATO’s guidance has been finalised following an extended consultation period with the community and tax professionals, with changes being incorporated based on feedback. The updated guidance provides greater clarity for trustees and advisers. It includes additional examples of how the guidance applies to different trust arrangements. It outlines a broader range of low-risk arrangements where the community can have confidence that the ATO will not consider section 100A.

Through consultation, the ATO has considered the concerns within the community regarding application date in the guidance.

In reassuring the community, Ms Clarke noted, 'we have not retrospectively changed our views on how the law operates. We will stand by our previous guidance for arrangements entered between 1 July 2014 and 30 June 2022 for those taxpayers who relied on it.'

In most cases, the ATO will only apply section 100A within 4 years of a trustee lodging their tax return. We will not be reviewing arrangements prior to 1 July 2014, other than in exceptional circumstances as outlined in the guidance.

Trustees who think the ATO’s guidance may apply to their affairs should speak to their registered tax professional for advice or apply to the ATO for a private ruling.

The updated guidance is available on the ATO’s website and a video explaining the ATO’s guidance and what it means for taxpayers and tax professionals is available in atoTVExternal Link.