Section 100A: The great unknown
The Commissioner’s guidance, or lack thereof, on the operation of section 100A of the ITAA 1936 continues to create great uncertainty for tax professionals.
Section 100A was introduced into the Act in 1978 to deal with blatant trust stripping arrangements. However, it has found a new lease of life with the Commissioner in recent years, and we have seen increased audit activity where the application of section 100A is being alleged. Further, the ordinary 2 or 4-year amendment periods do not apply where the Commissioner seeks to apply section 100A, and instead the Commissioner can go back as many years as he likes where a breach of section 100A is being alleged.
What is section 100A?
Section 100A is a broad anti-avoidance provision that allows the Commissioner to disregard trust distributions that form part of a ‘reimbursement agreement’ and to instead impose tax on the trustee at the top marginal tax rate (currently 47% including the Medicare levy).
Broadly, there will be a ‘reimbursement agreement’ in place where:
- a beneficiary who is not under any legal disability is presently entitled to a share of the income of the trust estate;
- the beneficiary is presently entitled to such income of the trust estate by way of a ‘reimbursement agreement’;
- as part of the arrangement, there is a payment or transfer of money or property to a person other than the beneficiary presently entitled; and
- the agreement was entered into to secure the reduction or elimination of tax paid in the relevant year.
Ordinary family or commercial dealing
The most contentious element of section 100A is the carve-out provided for arrangements entered into in the course of an ‘ordinary family or commercial dealing’. To maintain the mystique of this already vague phrase, the legislation does not define what an ‘ordinary family or commercial dealing’ is, nor does the case law provide a clear meaning in the context of section 100A.
The few cases on section 100A have dealt with blatant trust stripping schemes and are largely unhelpful when applying section 100A to more common place tax planning arrangements (e.g. distributions to adult children). If we go searching through the casebooks, we can find some judicial consideration on the meaning of the expression ordinary family dealing in the context of the former general anti-avoidance provision, section 260 of the ITAA 1936 (the predecessor to Part IVA).
The judgment of Lord Denning in Newton’s case is a leading example. In that judgment Lord Denning drew a distinction between transactions “capable of explanation by reference to ordinary business or family dealing” and arrangements “implemented in [a] particular way so as to avoid tax”:
In order to bring the arrangement within the section you must be able to predicate – by looking at the overt acts by which it was implemented – that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section.
Thus, no one, by looking at a transfer of shares cum dividend, can predicate that the transfer was made to avoid tax. Nor can anyone, by seeing a private company turned into a non-private company, predicate that it was done to avoid Div. 7 tax… Nor could anyone, on seeing a declaration of trust made by a father in favour of his wife and daughter, predicate that it was done to avoid tax…
To what extent the judicial comments on ordinary family dealings in the context of section 260 will inform the meaning of that phrase in the context of section 100A is an unknown.
Draft ATO ruling
As many tax professionals will be aware, the ATO has indicated for a number of years that it will be releasing a draft taxation ruling on section 100A. That ruling will set out the Commissioner’s preliminary views on the exclusions from a ‘reimbursement agreement’ for:
- agreements not entered into with a purpose of eliminating or reducing someone’s income tax; and
- agreements entered into in the course of ordinary family or commercial dealings.
The latest guidance on the ATO website suggests the release of that ruling is imminent with consultation expected to be completed this month (although, the ATO’s “Advice under development – trust specific issues” page still has an expected completion date of July 2021 for the release of the draft ruling).
Whenever the draft ruling is released, we’ll be covering it in detail in the Birchstone Brief and other forums so stayed tuned for our analysis and insights, and please get in touch with us in the meantime if you have any section 100A issues.
Decision Impact Statement: Eichmann
The ATO has released a decision impact statement on the decision in Eichmann v FCT  FCAFC 155. In that case, the taxpayer successfully challenged an ATO private ruling that denied the taxpayer access to the small business CGT concessions on the basis that the land was not an active asset used in the course of the taxpayer’s business. In the decision impact statement, the Commissioner stated that ‘[t]he conclusion of whether an asset is an active asset is intrinsically fact-dependent’.
PS LA 2021/D1 – Remission of additional superannuation guarantee charge
The ATO has released a Draft Practice Statement Law Administration which sets outs its revised guidance on what it considers when making a decision on the remission of the additional super guarantee charge where an employer fails to lodge a super guarantee (SG) statement by the lodgment due date. When the Draft Practice Statement is finalised, it will replaced PS LA 2020/4 which only applies to quarters that were subject to the superannuation guarantee amnesty (quarters ending on 31 march 2018 and earlier).
LCR 2021/2 – Non-arm’s length expenditure
The ATO has finalised their Law Companion Ruling which clarifies how the amendments to section 295-55 of the Income Tax Assessment Act 1997 (Cth) operate in a scheme where the parties do not deal with each other at arm’s length and the trustee of a superannuation entity incurs non-arm’s length expenditure in gaining or producing income. The Law Companion Ruling finalises the draft version of the ruling LCR 2019/D3 and largely maintains the ATO’s view, including on general expenses.
The ATO has also made a draft update to Taxation Ruling TR 2010/1 which deals with the crossover between the non-arm’s length income and superannuation contribution provisions.
The ATO has issued the following class rulings:
- CR 2021/49 – Cassini Resources Limited – Demerger and scrip for scrip roll-over;
- CR 2021/50 – Woolworths Group Limited – Demerger of Endeavour Group Limited;
- CR 2021/51 – Australian Vintage Ltd – Return of capital and share consolidation; and
- CR 2021/52 – Intelligent Investor Australian Growth Fund – Scrip for scrip roll-over.
Duties (NSW): Transfer duty thresholds
Revenue NSW has announced that from 1 August 2021 the transfer duty thresholds will revert to the previous thresholds. The NSW Government had previously increased the transfer duty thresholds for the purchase of new homes and vacant land from 1 August 2020 to 31 July. The thresholds are relevant for the ‘First Home Buyer Assistance Scheme’.
Duties (NSW): Evidence of value
Revenue NSW has amended Ruling DUT 012 v3 to insert a paragraph on when evidence of value will be required when options are exercised.
Duties (NSW): Transfer of primary production property between family members
Revenue NSW has released Ruling DUT 050 which provides an overview of the operation of section 274 of the Duties Act 1997 (NSW). Section 274 enables land used for primary production to be transferred between relevant family members free of duty.
Duties (ACT): Calculating landholder duty
The ACT Revenue Office has released Circular LHD001 which explains how landholder duty in the ACT is calculated, including how relevant acquisitions are valued.
Payroll tax (Tas): Waiver and rebate
The State Revenue Office of Tasmania has released guidance on the COVID-19 payroll tax waiver and rebate schemes.
Clark v FCT  AATA 2446 – Request for extension of time to object
The AAT has affirmed a decision of the Commissioner to refuse a taxpayer’s request for an extension of time to lodge objections.
The taxpayer’s employment required him to travel and stay overnight at different locations, for which he was paid an allowance for meal expenses. The taxpayer did not disclose the meal allowance or claim deductions for meal expenses in his income tax returns for the 2008-2018 years (relevant years). In 2020, the taxpayer objected to the assessments for the relevant years by disclosing the meal allowances and claiming deductions equal to the ATO’s ‘reasonable amounts’ guidelines. The taxpayer required an extension of time to lodge the objections for the relevant years. The AAT agreed with the Commissioner that the extensions should not be granted because the taxpayer had little prospects of success on the basis that the meal expenses incurred by the taxpayer (on the available evidence) were less than the ‘reasonable amounts’ in the ATO guidelines.
Employee Share Schemes: Exposure draft materials
The Treasury has released exposure draft materials on changes to the employee share schemes regime to implement the changes proposed in the Government’s 2021-22 Budget, including the removal of ‘cessation of employment’ as a taxing point.
Single Touch Payroll exemption: Closely held payees
An Instrument has been made which exempts certain classes of entities from reporting payments made to ‘closely held payees’ through Single Touch Payroll for the 2020-21 income years.