S100A Landscape – so far
For many years, business owners who operate through a trust structure have enjoyed the advantage of distributing profits to their adult children over the age of 18. This strategy allowed them to make use of the lower tax brackets applicable to these beneficiaries, effectively minimising their tax liabilities at year-end.
However, recent months have witnessed a noteworthy development in the realm of Australian taxation. The Australian Taxation Office (ATO) has introduced new rulings that bring about a fundamental change in the way profit distributions work within trusts (Section 100A). According to these new guidelines, in order to distribute profits to adult beneficiaries, trustees must physically transfer cash to the adult beneficiaries. It is no longer sufficient to rely solely on paper distributions.
It’s important to note that this area of tax law is still evolving, and the ATO has not yet provided final and comprehensive guidance on this matter. As a result, there remains some uncertainty among taxpayers and professionals in the field.
For those who have utilised trust structures for tax planning purposes, it is advisable to stay informed about the latest developments and rulings from the ATO. Consulting with a qualified tax professional or accountant is also recommended to ensure that your trust structure and tax planning strategies remain compliant with the evolving tax landscape.
While these recent changes may impact the way profits are distributed from trusts to adult beneficiaries, it is essential to stay updated and seek professional guidance to navigate this evolving terrain. Tax laws can be intricate, and compliance is vital to avoid potential penalties or legal complications.
See below for what we do know about changes to Section 100A by the ATO:
- 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 has not retrospectively changed its views on how the law operates
- The ATO will stand by its previous guidance, Trust taxation – reimbursement agreement, 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
- The ATO will not be reviewing arrangements prior to 1 July 2014, other than in exceptional circumstances as outlined in the guidance.
To learn more get in contact with one of our taxation experts today!
Reference:
https://www.cpaaustralia.com.au/tools-and-resources/taxation/section-100a-and-div-7aupe