The ATO has released public advice and guidance (PAG) products relating to the tax treatment of trust entitlements arising out of reimbursement agreements and unpaid present entitlements (UPEs) of trust beneficiaries.
The following draft products have been released for public consultation:
- Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements
- Draft Practical Compliance Guideline PCG 2022/D1 Section 100A reimbursement agreements – ATO compliance approach
- Draft Taxation Determination TD 2022/D1 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’?
- Taxpayer Alert TA 2022/1 Trusts: parents benefitting from the trust entitlements of their children over 18 years of age
These products have been developed in response to proposals by accounting professionals, tax advisers, and their clients that require more certainty, to meet their tax obligations on the matters covered by these products.
The products address situations when certain trust distributions may attract the operation of section 100A or Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).
TR 2022/D1 – Section 100A is an anti-avoidance rule that applies where lower or concessional taxed beneficiaries of a trust are made entitled to trust income by the trustee, while the income is enjoyed by another person who would otherwise have had to pay more income tax if they were made entitled to the trust income.
PCG 2022/D1 outlines what arrangements will attract the ATO’s attention, and which arrangements are of low risk. When PCG 2022/D1 is finalised, it will set out our compliance approach in relation to beneficiary entitlements conferred on or after 1 July 2022.
TD 2022/D1 – Division 7A is an integrity provision that aims to prevent tax-free distributions of profits of private companies to their shareholders. A loan (including any form of ‘financial accommodation’) provided by a private company to its shareholder or shareholder’s associates will, subject to specific exceptions, be included as a dividend in the shareholder’s or associate’s assessable income.
For more information about the release of the public advice and guidance follow the link below:
https://www.ato.gov.au/General/Trusts/In-detail/Trust-entitlements—draft-guidance/