S100A the new tax office on family trust and how to prevent it

Tax time is coming. In today’s article, we are going to talk about the recent audit focus from the Australian Taxation Office in term of examining the distribution from the family trust, especially the S.100A of ITAA36.

As the leading CPA accountant and tax agent in Ashfield Inner West Sydney, Belrose Northern Beaches, Adelaide, we always would inform our clients that before the tax time is due, we need to ensure that the distribution statement is prepared and signed, if not then it would be no beneficiary is presently entitled to the distribution, meaning that the trustee has to pay the highest marginal tax rate. 

The Australian Taxation Office (ATO) has kept an eye out for Trust Distribution using Section 100A (s 100A) because of its inherent asset protection, flexibility, and capacity to pass assets to future generations with minimal tax consequences (s100A).

The fundamental reason for this caution is the possibility that the money given to one beneficiary on paper could be used by someone else. In general, the scope of s100A is to capture agreements in which someone has received a tax benefit as a result of entering into such agreements.

The ATO is concerned about circumstances in which the recipient of the distribution is a lower-taxed person or business. The ATO has the authority under Section 100A to tax the trustee of a trust at a rate of 47 percent on such “sham” distributions.

An example of s100A risk is as follows:

Adult children do not receive “cash” payments from the Trust; instead, the monies are spent by the parents for their own personal purposes, and the Trust’s records show that the children’s entitlements have been paid out. In this situation, there is a risk of s100A.

Trustees should keep in mind that if an amount is distributed “on paper” to a beneficiary, the money should ideally follow. Furthermore, there are no amendment periods under s100A, so the ATO can go after these arrangements as far as they wish.

If you have a family trust or company structure, please come and talk to one of the leading CPA accountant, and tax agent in Belrose Northern Beaches, and we can help you out.