Changes to Section 100A

Changes to Section 100A

Section 100A of the Income Tax Assessment Act 1936 (ITAA 1936) is an anti-avoidance provision that applies in cases where a beneficiary has become entitled to trust income where it has been agreed that another person will actually receive the beneifts of the distribution. The agreement is made by any of its parties with a purpose that less tax will be paid as a result.

The changes to section 100A, which came into effect on 1 July 2022, have made it more difficult for taxpayers to use trusts to reduce their tax liability. The changes include:

• A new definition of "reimbursement agreement", which is now broader and includes agreements that are not necessarily in writing.

• A new requirement that the trustee of a trust must notify the ATO of any reimbursement agreements that are entered into.

• A new penalty for trustees who fail to notify the ATO of a reimbursement agreement.

The changes to section 100A are likely to have a significant impact on taxpayers who use trusts to reduce their tax liability. Taxpayers who are unsure about whether their arrangements will be caught by section 100A should seek professional advice.

Here are some examples of arrangements that may be caught by section 100A:

• A trust that distributes income to a beneficiary who is a low-income earner, but the economic benefit of the distribution is provided to a high-income earner.

• A trust that distributes income to a beneficiary who is a student, but the economic benefit of the distribution is provided to the beneficiary's parents.

• A trust that distributes income to a beneficiary who is a retiree, but the economic benefit of the distribution is provided to the beneficiary's spouse.

If you are unsure whether your arrangements will be caught by section 100A, please get in touch