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Tax Residency & Capital Gain Tax | 澳洲稅務居民資產增值稅

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The appeal decision is a win for the taxpayer regarding the application of section 100A, particularly with respect to whether an agreement was reached between the parties prior to a beneficiary becoming presently entitled to trust income – however, it is important to have the facts and evidence supporting that such an agreement was not in place.

The taxpayer was however unsuccessful with respect to Part IVA in the 2013 income year, which is a win for the ATO who will continue to apply Part IVA to arrangements involving trust distributions that are contrived to achieve tax benefits. Taxpayers need to be comfortable that trust distributions are not made for the dominant purpose of reducing income tax payable.   

Building on our previous article about this case, the SW team recaps the facts and looks at the detail of the Appeal and its outcome. 

Section 100A 

Firstly to recap, section 100A is an anti-avoidance provision that targets situations where one person is made presently entitled to income of a trust, but another person receives the benefit of the funds represented by the income. For section 100A to apply there must be a reimbursement agreement (very broadly defined) 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. 

Summary of the Guardian 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 created 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, which did not include franked dividends. AIT paid to Corporate Services an amount in cash to cover the income tax liability arising from 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 fully franked dividend to AIT. The UPE balance and the dividend payable were offset, so that the UPE was fully discharged. 

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

2014 

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 converted to a loan that was placed on complying Division 7A terms. 

Guardian case appeal decision

In the appeal, the Commissioner appealed against the decision of Logan J (which was favourable to the taxpayer), in relation to: 

• section 100A in relation to the 2013 income tax year and 
• Part IVA in relation to the 2012 and 2013 income tax years. 

Therefore, the Commissioner did not appeal against the elements of the previous decision made in favour of the taxpayer in regard to section 100A (2012 income year) and section 100A and Part IVA (2014 income year).  

Outcome of the appeal 

The Full Court (Perry, Derrington and Hespe JJ) dismissed the Commissioner’s appeal in relation to: 

• Section 100A for the 2013 income tax year and 
• Part IVA for the 2012 income tax year. 

However, the Court allowed the Commissioner’s appeal under Part IVA in relation to the 2013 assessment of Mr Springer.   

Basis of the Full Federal Court decision  

The key reasons for the Court’s decision in relation to section 100A include: 

• The reimbursement agreement did not arise out of the present entitlement. There was no ‘agreement’ for the purposes of section 100A that existed prior to or at the time that the 2013 present entitlement of AIT arose – that is, there was no ‘reimbursement agreement’ involving the payment of a dividend by AIT at that time.  
• An agreement requires that there be a consensus or adoption of the arrangement. Generally, the beneficiary would need to be a party to a reimbursement agreement for section 100A to apply (this should be contrasted with the decision in Idlecroft and the Commissioner’s view in paragraph 16 of TR 2022/4). 
• The attribution of purpose from professional advisors is more limited in the context of section 100A compared to intention in Part IVA. Given that Mr Springer had not provided his advisors authority to act on behalf of the relevant entities, the intention of the advisors could not be attributed to Mr Springer. 
• Even if the intention of the advisors were attributable to Mr Springer, the advisors did not specifically contemplate the reimbursement agreement until 15 January 2014, being 7 months after Corporate Services was made presently entitled to the income. At the time of the present entitlement arising, the option of paying the dividend was not ‘wholly conjectural’ but the Court held there was insufficient evidence of an agreement. 
• Although the comments were made in obiter, the Court recognised (and the Commissioner was noted in the judgement as agreeing) that the ordinary commercial and family dealings exception could apply where trust income is appointed to a corporate beneficiary. However, the case provides limited guidance in relation to the ordinary commercial and family dealings exception and provides little comfort to taxpayers that were hopeful of the Courts rejecting the Commissioner’s views in his recent tax ruling on section 100A (TR 2022/4). 

Part IVA 

Part IVA of the income Tax Act is the general anti-avoidance provision of Australian income tax law. The Court held that Part IVA would apply in relation to the 2013 income tax year (although not the 2012 income tax year). For Part IVA to apply, the following elements need to be satisfied: 

• A person enters or carries out a scheme. 
• The scheme provides a taxpayer with a tax benefit. 
• The dominant purpose (based on the objective facts) of entering the scheme is to obtain a tax benefit. 

A key issue in determining whether Part IVA applies to any given situation involves consideration of an alternative postulate or counterfactual – what would have happened (annihilation approach) or what might reasonably be expected to have occurred (reconstruction approach) if the relevant scheme had not been entered into? 

For 2012 and 2013 income tax years, the Commissioner’s alternative postulate was based on AIT making a direct distribution of unfranked income to Mr Springer. Therefore, in each year there was a scheme and a tax benefit given that Mr Springer would have paid tax at marginal tax rates (45%) under the alternate postulate in relation to the distribution of unfranked dividend income, rather than actual tax paid by Corporate Services of 30%. 

The Court held that the formulation of the alternate postulate needed to be based on the commercial outcomes of the arrangement. As Mr Springer ultimately received the cash relating to the 2012 and 2013 unfranked income, it was reasonable for the Commissioner to form the alternate postulate whereby Mr Springer directly received a distribution of unfranked income from AIT. 

The Court emphasised that the taxpayer has the onus of what might reasonably be expected absence the scheme (not just proving that the Commissioner’s alternate postulate was unreasonable). For the 2013 income tax year, the Court emphasised that in determining the alternative postulate any adverse tax impacts should be disregarded (that is, it was not open to the taxpayer to argue that an alternative arrangement would not have been entered into because the tax costs would be too high).  

The Court held that the dominant purpose of entering or carrying out the 2012 scheme was not to obtain a tax benefit whereas the dominant purpose of the 2013 scheme was to obtain a tax benefit. The decision of the Court was based on the following: 

• The factors to establish the objective intention of the taxpayers requires an examination of the manner in which the scheme was entered into or carried out. For 2012, there was an evolution of steps that meant the dividend was paid from Corporate Services to AIT. However, at the time the scheme was entered into there was no objectively ascertainable circumstances that would give rise to an expectation that the dividend would have been paid. 
• In contrast, as the 2012 UPE was cleared via the dividend in 2013, it was not unreasonable to expect that the 2013 UPE would be cleared via a dividend particularly given that Mr Springer had concerns about holding cash in Corporate Services and Corporate Services had not been used as a wealth accumulation vehicle. 

Concluding remarks 

While the appeal decision is a win for the taxpayer regarding the application of section 100A, unfortunately the case does not provide guidance on the ordinary commercial and family dealings concept, which is crying out for judicial clarification. The appeal decision also provides further ammunition to the ATO with respect to the application of Part IVA to such arrangements. 

How can SW help? 

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.  

Contributors

Ned Galloway

The post Guardian case – tax appeal decision on section 100A – Trusts  appeared first on SW Accountants & Advisors.

The ATO’s final interpretation of the law, and their compliance approach to trust arrangements where Section 100A may apply, was released on 8 December in the form of Taxing Ruling TR 2022/4 and Practical Compliance Guideline PCG 2022/2.

Following draft pronouncements released earlier this year (for our initial coverage of these earlier drafts, click here), these final documents take into account extensive submissions to the ATO as well as two Federal Court decisions: Guardian AIT Pty Ltd ATF Australian Investment Trust v FCT [2021] FCA 1619 (Guardian) and BBlood Enterprises Pty Ltd v FCT [2022] FCA 1112 (BBlood).

Both these decisions are on appeal to the Full Federal Court (For our analysis, see Guardian and BBlood).   

Background to section 100A – tax avoidance measure

Section 100A is an integrity measure introduced some 40 years ago to target tax avoidance arrangements involving a trustee making a beneficiary presently entitled to income, yet another person effectively enjoying the economic benefits from the present entitlement.

For the provision to apply, there needs to be a tax reduction purpose identified, and there is an exclusion for arrangements that are ‘ordinary family or commercial dealings.  Whilst originally targeted at aggressive tax avoidance arrangements, the provision is drafted in a manner that can be widely applied and is potentially relevant to some commonplace trust arrangements.

Where section 100A applies, the beneficiary’s entitlement to income is deemed not to have arisen, with the result that the trustee is assessed on the top marginal tax rate of 47%. 

Notably, and unlike many other provisions in tax legislation (including the anti-avoidance rules in Part IVA), section 100A has an unlimited amendment period.  

So, what has changed from the draft ruling and Practical Compliance Guideline (PCG)?

In short, not that much.

The Commissioner has fleshed out his analysis (with additional references to the Guardian and BBlood decisions) and provided more examples, which are helpful in better understanding the Commissioner’s position and the risk profile of various scenarios. 

However, those hoping for a softer landing with the final releases may be disappointed. In particular, the Commissioner has maintained his narrow view of the all-important ‘ordinary family or commercial dealing’ exception to section 100A.  

Changes to section 100A in the final ruling

• Numerous additional comments are made concerning the important condition that a tax reduction purpose must exist for the application of section 100A, many of which are driven by the BBlood judgement (decided in the Commissioner’s favour), including the following:
  • it is not necessary to identify a specific amount of additional tax that would be payable by a particular person (in the absence of the arrangement) for a tax benefit purpose to be identified
  • a deferral of tax liability to a later income year is sufficient to demonstrate a tax reduction, and
  • a tax reduction purpose may exist even in circumstances where tax savings did not eventuate.
• Where the objective of a dealing is the maximisation of group wealth by the payment of less tax instead of a family or other commercial objective, the ATO’s view is that this cannot be an ordinary dealing.
• Contextual facts, circumstances and (in a familial sense) cultural practices are relevant in demonstrating the commercial or family objectives of an agreement.
• Repetitive gifting or making of non-commercial loans by beneficiaries increase the risk that the arrangement would not be regarded by the Commissioner as an ordinary family or commercial dealing.
• A situation where an adult child beneficiary is aware of a distribution but chooses not to call on the trustee for payment until the funds are required, may be considered as an ordinary family dealing so long as the funds are not dealt with by the trustee in a manner inconsistent with this expectation. For example, loans to another person interest-free would increase the risk.

New content in the final PCG

Various additional examples have been included in the finalised PCG. While these are helpful in a communicative sense, in many cases these illustrations more exemplify than modify or soften the Commissioner’s previously stated views.      

New examples have been added to the ‘green zone’ (which covers arrangements that the ATO will not dedicate compliance resources to review, provided the taxpayer can demonstrate that the arrangement falls within the zone). Some notable new green zone examples include:

• an arrangement where a beneficiary receives and retains its entitlement within two years of becoming presently entitled.  As one would hope, the PCG confirms that leaving the entitlement unpaid beyond that period does not necessarily transpire to a high-risk arrangement which the ATO will review/challenge
• further illustrations of distributions to beneficiaries with losses, indicating he will likely accept such arrangement as green zone arrangements in circumstances where:
  • the entitlement is cashed out and the proceeds used to repay debt of the loss entity
  • the entitlement is not paid out but the entitlement is loaned back on complying Division 7A terms
• The finalised PCG removes the medium-risk arrangements (blue zone) and have essentially replaced this with a long list of exclusions from the green zone. These exclusions significantly narrow down the breadth of the green zone and include:
  • gifting, forgiving or releasing the trustee from its obligation to satisfy his/her trust entitlements (note that gifting of entitlements, say, between family members, may be an ordinary family dealing, but such arrangements would not fall with the safe harbour green zone)
  • deliberate actions (such as the trustee exercising a discretionary power) to create a mismatch between trust distributable income and taxable income
  • circular flows of funds involving discharge of a beneficiary’s entitlement through payments sourced from the same beneficiary (e.g. dividends)
  • a lossmaking beneficiary company or trust using its entitlement to fund a subsequent distribution that compromises its ability to repay existing or future liabilities
  • trustees not notifying the beneficiary of their entitlements to trust income
• One significant addition to the final PCG is the Commissioner’s emphasis on the maintaining of contemporaneous documentation in relation to trust distributions. The PCG makes reference to the need to maintain records to evidence how beneficiaries were notified of their entitlements, how entitlements were satisfied, details of how trusts applied any funds retained from undrawn entitlements (to satisfy the retention of funds conditions necessary for green zone status) and commercial/family objectives of arrangements. 

Significantly, one thing that was not changed in the PCG is that the Commissioner has not budged on the question of timing. The ATO has resisted the many requests that its views, as outlined in the earlier drafts, be applied only prospectively. However, some welcome additional guidance has been provided on the circumstances in which the ATO will review arrangements retrospectively.

How SW can help

Despite the guidance providing a better understanding of the Commissioner’s view, a number of concerns raised during the consultation process remain.

SW will continue to monitor this space and provide ongoing commentaries, with the impending full Federal Court decision for the Guardian appeal likely to be the next development (with BBlood following thereafter).  We will be looking to keep clients informed of any developments as soon as they occur.

If you would like advice regarding the application of section 100A, please reach out to our highly experienced SW team.

Contributors

Antony Cheung

Ned Galloway

The post ATO position on section 100A for trusts finalised appeared first on SW Accountants & Advisors.

There are a number of cases pending in relation to this controversial provision, including the Full Federal Court appeal by the Commissioner of the Guardian¹ decision of earlier this year, which dealt with section 100A and was decided in the taxpayer’s favour. To read more about our analysis of the Guardian case click here.

To recap, section 100A is a long standing anti avoidance rule originally introduced to counter aggressive ‘trust stripping’ schemes, but which can potentially be applied more broadly to certain arrangements (referred to in the legislation as ‘reimbursement agreements’) where trust beneficiaries are made entitled to trust income, but where there is a benefit or payment provided to a person other than the beneficiary to which the income is distributed.  Where section 100A applies, the result is that the beneficiary is deemed not to be entitled to the income, and the trustee is assessable in relation to that income at the top personal rate of tax (currently 47%).

In BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112, the Court held that a reimbursement agreement existed and that the arrangement was not explicable as an ordinary family or commercial dealing. As a result, the Court agreed with the Commissioner that section 100A applied.

The case | BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112

The facts

The facts of the case broadly are as follows:

• A family discretionary trust (IP Trust) held 99% of the shares in a company (IP Co) which had significant (franked) retained profits and nominal share capital
• The following steps were implemented during a particular year of income (2014):The trust deed of IP Trust was amended to ensure that the distributable income of the trust was income according to ordinary concepts (thus excluding profits of a capital nature)

1. A new family company (BE Co) was established as a beneficiary of the IP Trust Arrangements were made under which IP Trust had a modest amount of (ordinary) dividend and distribution income for the year
2. A selective share buy-back of the shares in IP Co was undertaken, the main result of which was that the franked retained profits of IP Co were flushed out to IP Co. Note that whilst the tax rules pertaining to share buybacks deem this component of the proceeds to be a dividend derived by IP Trust, it remains a capital receipt under ordinary concepts
3. The ordinary income of IP Trust for the year was distributed to BE Co and subsequently paid out
4. As a result of the operation of the normal tax rules relating to trusts, the deemed dividend component of the share buyback proceeds was taxable to BE Co, but being franked, no tax was payable by Be Co on this deemed dividend
5. The share buyback proceeds were retained by the IP Trust

• The result of the above steps (subject to the operation of the various anti avoidance rules that the Commissioner was seeking to apply) was that the retained profits of IP Co had been distributed to and retained by IP Trust without further tax being suffered.

The decision

The Court determined that section 100A applied, despite the fact that the beneficiary of IP Trust (BE Co) received in cash its full income entitlement (being the ordinary income), which is a separate entitlement to the share buyback proceeds retained by IP Trust. The Court concluded that the arrangement was implemented with a purpose of ensuring that the profits of IP Co were distributed in a tax-free form and not the result of an ordinary family or commercial dealing.

The result of the application of section 100A is that the income entitlement of BE Co is deemed to not exist. Such that the taxable income of IP Trust (inclusive of the grossed up deemed dividend from the share buyback) is assessable to the trustee at 47% (net of franking credits), the highest marginal tax rate of the beneficiary.

In relation to section 100A, the Court held that:

• a ‘reimbursement agreement’ is not constrained by the ordinary meaning of ‘reimbursement’ and has a wide meaning restricted only by the tax avoidance purpose and the ‘ordinary family and commercial dealings’ exception to section 100A
• a tax avoidance purpose arises for section 100A where there is a purpose of tax avoidance (paying no tax or less tax than the purported beneficiary). This should be contrasted with other integrity measures where the tax avoidance purpose needs to the sole or dominant purpose
• the ordinary family or commercial dealings exception needs to be applied to the arrangement as a whole rather than the individual steps.

The Court also considered the possible application of the ‘dividend stripping’ rules, which the Commissioner relied upon as an alternative to section 100A. The Court held that, although some of the elements normally associated with a dividend strip (e.g. involvement of third party) did not exist, there was sufficient similarity between the arrangements implemented and a dividend strip to apply these integrity measures in the alternative. If applicable, the dividend stripping measures would deny BE Co franking offsets in determining its tax liability for the year. However, given that section 100A applied, this secondary issue was, for the taxpayers concerned, somewhat academic.

So what does this decision mean?

On the one hand, the decision could be viewed as an appropriate outcome, given that the arrangements appear to have been somewhat artificially engineered (and indeed replicated by the taxpayer’s advisers for other clients around the same time) to achieve a beneficial tax outcome.  It is not surprising that the Commissioner sought to challenge the arrangement.  

On the other hand, the decision will potentially increase the Commissioner’s confidence to apply section 100A to circumstances that many may have thought it should not apply.

Notably, the Court determined that the fact that an income distribution was made and paid out in full was not, of itself, sufficient to conclude that section 100A had no role to play. The Court effectively viewed the income distribution as an enabling mechanism by which the retained profits of IP Co were transferred on a tax free basis to IP Trust and, more importantly, as a ‘reimbursement agreement’ with a tax benefit purpose for the purposes of section 100A. It is noted that facts in this situation are quite similar to one of the more controversial examples in Taxation Ruling 2022/D1 released earlier this year.[1]  

The case also highlighted the importance of ensuring that there is solid evidence to support arguments that the arrangement is an ordinary family or commercial dealing.  In the BBlood case, general assertions by the taxpayer that the arrangements were motivated by commercial (not tax) reasons, such as estate planning and group simplification, were not compelling and failed to discharge the taxpayer’s onus of proof.

Reach out to our SW team if you would like to further understand or discuss the implications of this case.

Our previous articles on 100A:

Guardian case – section 100A win for the taxpayer

Trust distributions – the game has changed

Contributors

Ned Galloway

¹ Guardian AIT Pty Ltd v Commissioner of Taxation [2021] FCA 1619;114 ATR 136

² Example 8 in Draft Taxation Ruling TR 2022/D1

The post Trusts & section 100A | Commissioner draws first blood appeared first on SW Accountants & Advisors.

The contents of these pronouncements are both voluminous and complex and are still being digested, but essentially relate to the Commissioner’s views on the operation of two integrity measures – section 100A and Division 7A. 

Section 100A

What is it?

Section 100A is an anti-avoidance provision that has the potential of imposing a penal tax outcome where one person (beneficiary) is made presently entitled to trust income, but another person effectively receives the benefit of the income.  The provision was originally introduced (way back in 1979) to attack aggressive tax avoidance arrangements, but it is worded so broadly that it can technically apply to much more commonplace circumstances.

If it applies, the relevant trust income is generally subject to tax within the trust under section 99A at the top marginal rate of tax (currently 47%).

Historically, many taxpayers and their advisers have taken comfort from the rule in section 100A that ‘ordinary family or commercial dealings’ are excluded from the operation of section 100A.

What is changing?   

In recent years, it has become evident that the Commissioner has been looking to apply section 100A to circumstances well beyond its originally intended targets, and yesterday made public his detailed (preliminary) views on this troublesome provision in the form of:

• Draft Taxation Ruling 2022/D1 – Income tax: section 100A reimbursement agreements
• Taxpayer Alert TA 2022/1 – Parents benefitting from the trust entitlements of their children over 18 years of age
• Draft Practical Compliance Guideline 2022/D1 – Section 100A reimbursement agreements – ATO compliance approach

Whilst administrative guidance on this difficult subject is welcomed from a clarity perspective, the preliminary views expressed will present challenges to many and could fundamentally change the tax planning considerations for trusts and beneficiaries.

What does this mean?  

Whilst the detail of these lengthy and complex draft pronouncements is still being digested, we note the following key points:

• the Commissioner has expressed a very broad view of circumstances to which section 100A could apply
• the Commissioner has expressed a very narrow view of when the ‘ordinary family or commercial dealing’ exception is likely to apply.

The Commissioner has indicated that section 100A could apply to the following circumstances, including:

• gifts from individual trust beneficiaries on low marginal tax rates to other family members with a higher marginal tax rate – for example, gifts or reallocations from adult children that have unpaid trust distributions to their parents.
• a pattern of behaviour involving continuous gifts from beneficiaries back to the trust or even circumstances involving accumulation of unpaid trust distributions with the funds being retained in the trust
• non-commercial loans between family members funded by income distributions from a trust
• manipulation of income of the trust estate and net income.

The examples referred to above have far reaching implications for trusts and their beneficiaries (including corporate beneficiaries).  The approach that Commissioner proposes to adopt represents a significant departure from arrangements that many family groups will have adopted in the past.

The Taxpayer Alert TA 2022/1 specifically identifies circumstances which the Commissioner regards as high risk in relation to distributions to children of parents who control a discretionary trust.  The TA not only addresses 100A, but indicates the distributions may be legally ineffective or subject to Part IVA.

When will this new approach apply from?

The draft ruling indicates that the approach will apply retrospectively as well as prospectively, subject to some concessions set out in Draft Practice Compliance Guideline PCG 2022/D1.  This is significant, as section 100A (being originally intended for aggressive tax avoidance measures) is not subject to any statutory time limits – it can be applied retrospectively indefinitely, without the usual limitations upon the Commissioner.

Unfortunately, the draft PCG only provides limited concessions for arrangements entered into prior to the release of the pronouncements referred to above.  In very broad terms, certain pre-existing arrangements that are regarded as relatively benign will not be reviewed by the ATO. The limits to these concessions is one of the elements of the new suite of drafts that we believe is worthy of further dialogue and submissions in an effort to seek an outcome that is less harsh.

The PCG also provides something of a ‘heat map’ for taxpayers and advisers to rate the risks of arrangements under section 100A.

Division 7A – complying subtrusts no longer permitted

In addition to the section 100A developments, the Commissioner has also issued a draft determination in relation to Division 7A (TD 2022/D1: when will an unpaid present entitlement or amount held on sub-trust become the provision of financial accommodation). Whilst this TD is quite lengthy, the essence of it is that the Commissioner has announced a prospective (from 1 July 2022) change to his previous approach under which he allowed unpaid trust distributions owing to a company beneficiary to be put on interest-only terms for a 7 or 10 year period (depending on the interest rate).  The new approach will be more challenging for taxpayers in that such unpaid entitlements will need to be put on complying Division 7A loan terms, which broadly require both interest and principal repayments annually.   

Next steps

Section 100A in particular is a very technical and difficult provision and there is much to digest in the pronouncements referred to above.  SW will be considering the draft guidance in detail and propose to make submissions to the ATO prior to the finalisation of these pronouncements. 

Another factor to bear in mind (which is also referred to by the Commissioner in the draft ruling) is that the recent Guardian case concerning the operation of section 100A (refer to SW summary here: Guardian case – section 100A win for the taxpayer (sw-au.com), which was decided in favour of the taxpayer, is subject to appeal.  The draft views expressed appear to have been formed without any major regard to this decision, so the outcome of this appeal will be particularly relevant in this context. 

In addition to making submissions to the ATO in respect of these drafts, SW will be closely monitoring developments in this area and will keep its clients well informed as circumstances evolve.

Contributors

Ophelia Katrivessis

Ned Galloway

The post Trust distributions – the game has changed appeared first on SW Accountants & Advisors.

As part of the measures introduced in The Land Tax (Miscellaneous) Amendment Act 2019 (Amending Act),  surcharge rates (0.5% higher than marginal rates applied to non-trusts holdings) of land tax will be imposed on certain types of trusts including discretionary, fixed and unit trusts commencing from 1 July 2020.

However, Trustees of discretionary trusts holding land acquired on or before 16 October 2019, have the option to continue accessing the lower general rates of land tax. This can be done by nominating a natural person beneficiary as the owner for land tax purposes. The deadline to nominate ends on 30 June 2021. There will be no option to nominate after this deadline and discretionary trusts without a nominated beneficiary will be subject to the surcharge rates.

If the designated beneficiary owns other land, the land will be assessed in their ownership along with any other interests in land that they own. Consideration will therefore need to be given as to whether to nominate a beneficiary and, if so, which beneficiary. Once made, the nomination can only be changed in very limited circumstances.

Land acquired after 16 October 2019 by a discretionary trust will be assessed at the higher trust land tax rates. There is no exception to this, even if the trustee nominates a beneficiary for other land acquired by the trust prior to 16 October 2019.

Trust notification requirements

A reminder that any person holding land as a trustee as at 30 June 2020 was required to notify Revenue SA by 31 July 2020 of the land owned on trust.

For land acquired after 1 July 2020, you must notify Revenue SA within one month of acquiring any land on trust.

Aggregation of land

Another significant impact from the Amending Act is the aggregation of land holdings by companies and individuals.

Nomination of beneficiaries – Fixed and unit trusts

Trustees of fixed and unit trust also have an option to notify the Commissioner of State Taxation of the unitholders or beneficiaries, resulting in each unit holder being deemed the owner for the purpose of the Amending Act and taxed at normal tax rates accordingly on their proportion of the subject land.

This nomination can be made at any time and will be effective for the current and future financial years unless revoked.

How SW can help

If you own land in South Australia through a trust structure and or need assistance navigating these amendments, reach out to your SW contact our property experts below for assistance.

Contacts

The post South Australian Land Tax – Trust nomination appeared first on SW Accountants & Advisors.