Family Trusts facing tax reform
The ATO has announced that it is going to be putting payments from family trusts into the spotlight, to limit what it calls “washing machine” cash distributions and tax-saving arrangements. Here’s what you need to know.
By JIm Vass
What are the changes?
This has been mooted for some time and the draft ruling and practical compliance guidelines have now been released. Specifically, the changes relate to Section 100A reimbursement agreements and Division 7A of the Income Tax Assessment Act 1936, specifically:
- reimbursement agreements under section 100A, and identifies arrangements that will not attract our compliance resources
- when ‘financial accommodation’ arises under Division 7A
- arrangements of concern where taxpayers are using adult-child beneficiaries of family trusts to avoid tax on income.
This will affect family business and family trust beneficiaries. Until now, distributions from family trusts have legally been able to be made to lower-taxed family members, or to another company owned by the trust to limit FYE tax liability.
In recent times, these arrangements – which have been around forever – have come under intense scrutiny along with household costs, family holidays, cars and a range of other living expenses in relation to family companies and family trusts.
At this stage, the ATO has released the information for public consultation, which is open until 8 April, 2022.
More information to come
We are considering the information carefully, to understand what potential impacts or considerations there might be for clients. The good news is that the new guidelines offer a lot more clarity in this area. The ATO has called them the most significant reforms in this area in at least 10 years.
As yet, the timeline for implementation following the consultation period has not been released, but please rest assured that we’re keeping an eye on it, and will be notifying clients potentially impacted.
At this stage, you don’t need to do anything. Of course, if you have any questions or concerns don’t hesitate to contact us.
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