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Preventing S100A: Safeguarding Your Family Trusts

Tax time is approaching. Today’s article will cover the recent audit focus from the Australian Taxation Office (ATO) on the distribution from family trusts, specifically S100A of ITAA36.

We always advise our clients to prepare and sign the distribution statement before the tax deadline. If this isn’t done, no beneficiary will be presently entitled to the distribution, and the trustee will have to pay the highest marginal tax rate.

The Australian Taxation Office (ATO) monitors Trusts Distribution using Section 100A due to its inherent asset protection, flexibility, and ability to pass assets to future generations with minimal tax consequences.

We exercise this caution because someone else could use the money given to one beneficiary on paper. Generally, s100A aims to capture agreements where someone receives a tax benefit from such arrangements.

The ATO is concerned about situations where the distribution recipient is a lower-taxed person or business. Under Section 100A, the ATO can tax the trustee of a trust at a rate of 47 percent on these “sham” distributions.

An example of Family Trusts S100A:

Parents spend the money for their purposes instead of giving “cash” payments from the Trust to adult children, yet the Trust’s records show that the children’s entitlements have been paid out. This situation poses a risk under s100A.

Trustees should ensure that if an amount is distributed “on paper” to a beneficiary, the money should ideally follow. Additionally, there are no amendment periods under s100A, allowing the ATO to investigate these arrangements indefinitely.

Familiarizing yourself with the intricacies of family trusts or company structures is highly beneficial. Seeking guidance from a tax specialist in your area is even more advisable to ensure you make informed decisions.