ATO issues important guidance for businesses that use trusts

The Australian Taxation Office has responded to feedback from trustees and their advisors by issuing guidance on trust reimbursement agreements.

The guidance, which relates to reimbursement agreements where section 100A of the Income Tax Assessment Act 1936 may apply, will not affect "the vast majority of small businesses operating through a trust", according to the ATO.

ATO Deputy Commissioner Louise Clarke said given that section 100A is an anti-avoidance rule, the ATO's guidance is firstly about ensuring that those structuring their affairs to avoid their tax obligations are held to account.

"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," she said.

"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."

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, Ms Clarke added.

ATO reassures community

The ATO’s guidance was finalised following an extended consultation period and:

• Includes additional examples of how the guidance applies to different trust arrangements
• Outlines a broader range of low-risk arrangements where taxpayers can have confidence the ATO will not consider section 100A

The ATO will not retrospectively change its views on how the law operates, and will stand by its previous guidance for arrangements entered into between 1 July 2014 and 30 June 2022.

In most cases, the ATO will only apply section 100A within four years of a trustee lodging their tax return. It will not review arrangements before 1 July 2014, other than in exceptional circumstances (which are outlined in the guidance).

The ATO has suggested that trustees who think the ATO’s guidance may apply to their affairs should consult their registered tax professional for advice or apply to the ATO for a private ruling.