Morrison government says it won’t ‘hesitate’ to change trust laws as section 100A confusion continues

The Morrison government has pledged to “provide certainty for family trusts” and stop tax laws from being applied unfairly if it is re-elected, and says it “will not hesitate” to make legislative changes if needed. 

The comments, from Assistant Treasurer Michael Sukkar, come amid ongoing concerns among tax professionals about the application of the Australian Taxation Office’s draft guidance on section 100A. 

Speaking last week before the election was called, Sukkar welcomed clarification from the ATO that the draft section 100A (draft TR 2022/D1 and draft PCG 2022/D1) will not be applied retrospectively. 

The draft guidance, which was issued in February, has the potential to affect many small business owners who use trusts as it relates to reimbursement agreements for trust beneficiaries. It replaces the ATO’s guidance on this matter from 2014. 

The ATO has now clarified that business owners can continue to rely on the 2014 guidance for matters that arose while that guidance was in place. 

The tax office has also clarified that ordinary advice services provided in exchange for an advisory fee will not be subject to promoter penalty provisions. 

Sukkar said small business operators and their advisors will welcome both clarifications, but the government intends to “monitor the consultation process closely and will consider any appropriate changes to the law should any adverse retrospective impacts arise”. 

The consultation process on section 100A has now been extended by the ATO to April 29, with ATO chief tax counsel Fiona Dillon last week acknowledging the concerns of tax practitioners in a webinar with the Tax Institute. 

“We obviously could have done better at explaining the section 100A draft because this is not meant to be a document that applies to the majority of situations,” she said, as reported by Accountants Daily. 

“What we will need to do now is to seriously listen to the concerns that have been raised and see how we can express our views in a way that makes it more clear that we are just talking about very egregious situations and this is not something that should alarm the majority of tax advisers.”

In his statement, Sukkar said the government will also “carefully consider” the implications of the High Court’s decision last week in the case Commissioner of Taxation v Carter, which relates to a trust beneficiary ‘disclaiming’ a distribution and the tax payable on it. 

“While the decision brings some clarity to a complex area of both tax law and the law of trusts, the Court itself noted that both its interpretation, and the alternative interpretation offered by the respondent, were capable of giving rise to apparent unfairness,” said Sukkar.