Tim Munro, my fellow Director at the Succession, Asset Protection and Estate Planning Advisers Association (“SAPEPAA”) is riled up about the changes to the taxation of Trusts brought on by the Commissioner of Taxation. There are a number of important issues raised by the rulings including:
- 1. Why are the rulings being released now with Trusts and beneficiaries in the middle of tax return season?
- 2. How do you correlate 2021 trust distributions and completing tax returns if there is an apparent conflict?
- 3. Are the rulings retrospective back to 2014?
- 4. In Guardian AIT Pty Ltd ATF Australian Investment Trust v FCT  FCA 1619 the Commissioner assessed the Trust for taxation at 45% on the reimbursement income and also levied a 50% penalty tax plus interest on the Australian Investment Trust. Is that what Trusts which fall into the Red Zone are facing? Back to 2014?
- 5. Why are the accountants understanding of the purpose of the arrangement imbued to the Trustee?
- 6. The threat of referring tax agents to the Tax Practitioners Board is alarming and will tax agents lose their licence because of clients being in the Red Zone or Blue Zone without appropriate documentation and evidence to back up a non-tax avoidance purpose?
- 7. Will the Commissioner really use the Promoter rules against accountants and tax agents and a potential, listen to this, $5,500,000 fine?
I could go on forever but best left to Tim, and you can see from above, why he is so riled. Importantly SAPEPAA will be making a submission on the Commissioner’s rulings. We plan to drill down into the conflicts between the rulings and the Guardian case.
Section 100A – a Tough One
In my view and from experience, section 100A is a difficult section introduced in 1978 that requires four important steps before the trustee is taxed and penalties raised.
Step One: At the time of the making of the distribution there is an agreement in place, written or otherwise, where the beneficiary receives the distribution but another party is compensated for the making of the distribution to the beneficiary. In the Guardian case, at the time of making of the distribution there was no such agreement so the Commissioner did not make it past first base.
Step Two: Someone else has benefited under the arrangement, a party who was not the beneficiary. There needs to be a link between the two – the beneficiary and the benefiting party.
Step Three: The purpose of the arrangement is tax minimisation and avoidance. For example, the explanatory memorandum to the section 100A Bill introduced by then Treasurer John Howard, is a trust distributing to a tax exempt charity who then pays a substantial part of the distribution to a third party – related to the Trustee of the Fund. Again, this is clearly a pre-meditated arrangement – that is the arrangement was in place at the time of the distribution.
Step Four: if the arrangement was for ordinary commercial or family dealings then section 100A cannot apply.
If you would like to have input on the submission by SAPEPAA please contact me – email@example.com or firstname.lastname@example.org Now if you are not a member of SAPEPAA yet please go to www.sapepaa.org.au where members get CPD as part of their subscription, an opportunity to meet other professionals who see this $6 trillion opportunity a way of breaking out of the compliance shackles of the accounting and financial planning industries and an association that stands up to its members.
BUT, the important issue here is that this game will play out over time, but we now live in a world where litigation is rife, both during life and even after death, where Regulators such as ASIC and the ATO can cancel your business and even freeze your assets and bank accounts. If you don’t prepare for the worst and the worst happens, well …. you know from above how bad that can be.
Next Tuesday 8 March at 12pm ADST I will be going through a strategy to protect your business that we call the Business Protector. However it is not only for accountants but also for most of your business clients. I will be going through all the ins and outs of the strategies, the tax side of the equation plus what structures are required, how to put it into action, discuss with clients and also what to charge.
To register: The Business Protector Webinar