Section 100A and Div 7A/UPE – ATO guidance

The ATO has finalised its guidance on section 100A reimbursement agreements. The Commissioner’s view and the ATO’s compliance approach are set out in:

• Taxation Ruling TR 2022/4 Income tax: Section 100A reimbursement agreements (the TR) and compendium
• Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements - ATO compliance approach (the PCG) and compendium.

Key changes from the draft guidance include:

• The removal of the blue zone from the PCG
• Inclusion of further green zone examples in the PCG
• References to the recent decisions in BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112 and Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619 in the TR.

The ATO has stated 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 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.

Earlier in 2022, the ATO also issued Taxpayer Alert TA 2022/1 Parents benefiting from the trust entitlements of their children over 18 years of age and finalised Taxation Determination TD 2022/11 Income Tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'?. The ATO is also drawing attention to Division 7A risks such as:

• loans being repaid shortly before the private company's lodgment day with the intention of directly, or indirectly, reborrowing a similar or larger amount from the same company
• money or assets that are directly, or indirectly, borrowed from a company in order to make payments, including minimum yearly repayments, for a loan from the same company.

Resources

We have prepared the following resources to help you and your clients identify and address issues arising from the ATO's guidance on family trust distributions pursuant to Section 100A and Division 7A of the Income Tax Assessment Act 1936 (Cth). 

Please note that: 

• Each individual situation will depend on the facts and circumstances of the arrangement.
• The resources provided are not a substitute for legal advice.
• This information is current as at December 2022.

External ATO resources:

• Trust taxation - reimbursement agreement (web guidance)
• Trusts: Section 100A and Reimbursement Agreements (video explainer)
• Avoid surprises when borrowing from your company (business bulletin)