ATO finalises guidance on the anti-avoidance provision dealing with trust distributions (section 100A)

The ATO has finalised draft guidance on the application of section 100A to trust entitlements, staying close to the original released earlier this year.

The finalisation comes despite two cases (both for and against the Commissioner) currently on appeal to the Full Federal Court. The guidance provides a very stringent view by the ATO on what may fall within the scope of section 100A. This may create significant risks with respect to trust distributions that will need to be managed very carefully.

The ATO has finalised its section 100A guidance, comprising Taxation Ruling TR 2022/4 (view here) and Practical Compliance Guidance PCG 2022/2 (“PCG 2022/2”) (view here).

These documents do not significantly depart from the draft versions that were the source of much debate when they were originally released (view the article here). While the ATO had been silent on the operation of the provision for almost 40 years, the ATO’s preliminary view was broadly that the provision would apply to trust distributions where the benefit was not otherwise only provided to the recipient beneficiary (resulting in 47% tax to be paid on such distributions).

Following the release of the draft guidance, Pitcher Partners provided a detailed submission to the ATO on its concerns regarding the breadth of the ATO view and in particular the limited low risk scenarios (i.e. the green zone scenarios) contained the guidance. We also raised our concerns about the retrospectivity of the ruling and lack of guidance for many arrangements common for private groups (read it here).

There have been a few additions to the guidance products, including the expansion of green zone scenarios to cover trust-to-trust distributions and where there is a time lag between the entitlement arising and the satisfaction of that entitlement. Unfortunately, the ruling still applies retrospectively to trust entitlements that arose prior to 1 July 2022.

The ATO has also provided some further insight into submission questions raised in the accompanying compendiums that contain the ATO responses to the feedback received on the draft products.

What are the next steps?

In addition to the retrospective nature of the products, the new products will have a significant impact on 30 June 2023 trust distributions . Pitcher Partners intends to provide further guidance (both in bulletins and through presentations) on managing trust distributions in accordance with these ATO products.