Guardian case - section 100A win for the taxpayer


In December 2021, the Federal Court handed down its decision in Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619. The court found in favour of the taxpayer in relation to the application of section 100A.

There is little guidance around the application of section 100A particularly in respect of the ordinary and commercial dealings exemption. The case provides some guidance surrounding what arrangements are outside the scope of section 100A and arrangements that are exempt because the arrangement is an ordinary family or commercial dealings.

The Commissioner has recently appealed the case and will be releasing their own guidance on the application of section 100A expected in Draft Taxation Ruling TR 2022/D1. In our opinion, section 100A is and will continue to be an area of ATO focus in most private groups reviews and audits.

Section 100A

Section 100A is an anti-avoidance provision that target situations where one person is made presently entitled to income, but another person receives the benefit (cash) of the income. For section 100A to apply there must be a reimbursement agreement and:

  • the person who is made presently entitled to the income, but does not receive the income, is taxed at a lower rate than the actual recipient of the cash; and
  • the agreement, arrangement or understanding cannot be a reimbursement agreement where the agreement, arrangement or understanding arises from an ordinary family or commercial dealing.

An example where section 100A could apply occurs when:

  • a trust distributes income that consists solely of interest income to a foreign person
  • the trust is subject to interest withholding tax at a rate of 10%
  • before the foreign resident is made presently entitled, the trustee agrees to pay the cash to a resident beneficiary
  • the resident beneficiary would have been taxed at a rate of 47%.

Facts of the case

The case involves three key parties, being:

  • Australian Investment Trust (AIT) – an Australian discretionary trust
  • Mr Springer – a non-resident taxpayer that is the controller of AIT and other entities in the Springer Group
  • AIT Corporate Services Pty Ltd (Corporate Services) – a wholly owned subsidiary of AIT.

Corporate Services was a newly incorporated ‘cleanskin’ company for the purpose of receiving distributions from AIT. The other Springer Group entities had previously traded and were being wound down or sold in order for Mr Springer to simplify his life and transition to retirement.

2012 and 2013

Corporate Services was made presently entitled to the income of AIT for the 2012 and 2013 income tax years. AIT paid to Corporate Services an amount in cash to cover the income tax liability arising the distribution. The balance owing from AIT to Corporate Services remained as an unpaid present entitlement (UPE).

In the following income years, Corporate Services declared a full franked dividend to AIT. The UPE balance and the dividend balance were fully offset.

The franked dividend received by AIT was distributed to Mr Springer. As a non-resident, Mr Springer was not subject to any further tax on the dividend.


Corporate Services was made presently entitled to the income of AIT for the 2014 income tax year. Similar to 2012 and 2013, AIT paid to Corporate Services an amount in cash to cover the income tax liability arising the distribution. However, the UPE balance was placed on complying Division 7A terms.

Outcome of the case

Justice Logan found in favour of the taxpayer in relation to section 100A for the 2012, 2013 and 2014 income years. The key reasons for the court’s decision include:

  • the reimbursement agreement must precede the present entitlement. The taxpayer was able to produce sufficient evidence (both written and orally) that the decision to pay out the dividend and place the UPE on Division 7A loan terms occurred after the present entitlement arose
  • the incorporation and subsequent distribution to Corporate Services was an ordinary family dealing. Mr Springer wanted to decrease risk associated with distributing to trading entities and shield accumulated wealth from creditors
  • at the time of the present entitlement, even if there was an agreement, the agreement did not provide for a payment of money or transfer of property to another person
  • there was no tax purpose. The taxpayers were able to demonstrate that the counterfactual available to the Commissioner was that the distribution would have been made to Corporate Services, but Corporate Services would have retained the cash.

How can SW help

Although the original decision is a win for the taxpayer, the Commissioner’s approach in this case and the imminent release of draft rulings highlight the Commissioner’s increased focus on section 100A. The saving grace of this taxpayer was the contemporaneous documentation and the strong witnesses that provided honest, candid and consistent evidence with the documentation.

SW will be releasing additional commentary on this case and the Commissioner’s ruling once available.

SW has assisted a number of taxpayers in recent years in relation to ATO reviews and audits on 100A. If you would like any further information please contact a member of the SW tax team.


Ophelia Katrivessis

Ned Galloway

Return to Services