ATO Trust Distribution Guidance Update
In our March Sky Update we wrote about the ATO’s draft guidance contained in draft tax ruling TR 2022/D1.
This draft ruling deals with “reimbursement agreements” covered by Section 100A of the Income Tax Assessment Act 1936.
Broadly, the term “reimbursement agreements” is used to describe a situation where one party receives a distribution from a trust for tax purposes, and another party enjoys the benefit.
In other words, the person who declares the distribution in their tax return is different to the person who gets the cash.
Section 100A is intended to combat improper “reimbursement agreements” that are designed to avoid tax. When Section 100A applies, the trustee of the trust (& not the beneficiary) will be taxed on the trust distribution at a flat tax rate of 47%.
Whilst Section 100A has been in the legislation for over 40 years, there has only been a handful of cases where Section 100A has been applied and scant guidance from the ATO.
Other than a basic fact sheet first published in 2014, the ATO have not formally expressed a view on the application of Section 100A until now.
The views expressed in the draft ruling have been controversial with many arguing that they are out of step with the way in which Section 100A has been historically applied and commonly understood to operate.
We understand that the ATO has received a significant number of detailed submissions from the key accounting and legal professional bodies along with numerous other submissions from interested parties.
We have observed that many of those submissions have been critical of the ATO’s views expressed in the draft tax ruling.
The ATO will now need to work their way through those submissions and identify how their guidance may need to be revised before the final tax ruling can be published.
We anticipate that the ATO have some significant work ahead of them on this issue and that we are unlikely to have any certainty in this space for some time to come.
In the meantime, the ATO have released a public statement seeking to quell the unrest and to reassure the public that they do not intend for Section 100A to have broad application to common arrangements currently utilised by the majority of trusts.
We will continue to monitor the situation and will provide ongoing updates.
In the meantime, please get in touch if you have any questions.
EOFY 2022
With the 30th of June 2022 now just around the corner, we recommend that businesses and individuals undertake a tax planning exercise.
Fundamentally, tax planning is about ascertaining your likely tax position for the financial year about to end.
This gives you visibility on your tax obligations so that you can proceed in an appropriate manner.
For example, it will assist you in managing cash flow so that funds are available to pay taxes when they fall due. It will also assist to determine the appropriate time to lodge tax returns (early v delay).
Additionally, it provides the important opportunity to identify the actions that can be taken prior to the close of the financial year in order to produce the best possible tax outcomes.
These actions often include items such as:
- Payment of superannuation contributions;
- Investment in business assets that are eligible for temporary full expensing;
- Writing off bad debts;
- Reviewing stock takes and valuation methods;
- Identifying unearned income;
- Ascertaining the value of work in progress; and
- Identifying where expenses (deductions) can be brought forwards.
A tax planning exercise can also assist businesses and investors to identify where their PAYG instalment obligations may be able to be varied in order to reduce ongoing cash flow commitments.
If you need assistance with tax planning, please get in touch.
Fair Work Annual Wage Review
During the recent federal election campaign, there has been debate on what politicians, business groups, unions and others believe the annual minimum wage increase should be.
We note that Annual Wage Reviews are conducted by the Fair Work Commission (FWC), an independent body that undertakes a rigorous process in order to determine the National Minimum Wage.
Whilst politicians and others may hold strong views on what the increase should be, they have no say in the decision. They merely have the right to make a submission for the FWC to consider.
As always, the FWCs decision is anticipated to be issued in late June 2022.
As we have heard in the election campaign, the National Minimum Wage decision is an important event for many of our nations lowest paid workers. However, that decision also affects the minimum rates applicable to Australia’s Modern Awards.
As such, the decision has much wider implications than may have been portrayed in recent media coverage.
After the FWC releases the decision, the Fair Work Ombudsman will update the Pay Guides that set-out the minimum award rates.
Typically, the new rates will apply from the first full pay period occurring after the 1st of July.
We recommend that employers keep an eye on the FWO website for the updated Pay Guides to ensure that they continue to pay staff correctly leading into the new financial year.
If you have any questions regarding the Annual Wage Review, please get in touch.
Remember: Super changes are coming in July
Back in November, we wrote about Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021.
This Bill received Royal Assent on the 22nd of February and enacts a number of changes, including:
- Removing the monthly $450 minimum threshold for mandatory employee super contributions;
- Removing the work test for salary sacrifice and non-concessional (non-deductible) personal contributions made by those aged between 67 and 75;
- Dropping the eligibility age for Downsizer Contributions from 65 to 60; and
- Increasing the limit on the amount that can be released from super under the First Home Super Saver Scheme from $30,000 to $50,000.
The super changes in the Bill commence from the 1st of July 2022.
Additionally, the Bill extended the Temporary Full Expensing of Depreciating Assets arrangements by 12 months to the 30th of June 2023.
Lastly, we take this opportunity to remind you that the superannuation guarantee percentage is increasing from 10% to 10.5% from the 1st of July 2022.
Please get in touch if you require additional information on any of these measures.
Federal Election
The Federal Election was held on Saturday the 21st of May and we have seen a substantial swing away from the Liberal party resulting in a number of lost seats.
With Mr Morrison conceding defeat, Mr Albanese was sworn in as Australia’s 31st Prime Minster on the morning of Monday the 23rd of May.
At the time of writing, it remains unclear whether the ALP will secure sufficient seats to form a majority government. If unable to, the ALP will form a minority government with the support of the crossbench.
When the Parliament was prorogued in April, there were a number of Bills before Parliament that lapsed. There were also a number of measures announced in the recent Federal Budget that had not been legislated.
For example, the Small Business Technology Investment Boost and Small Business Skills and Training Boost that have garnered much interest.
As is to be expected, the policy priorities of the ALP are different to those of the LNP. As such, we must now wait to see which of the lapsed Bills and Federal Budget announcements will be proceeding. And if so, how they will be modified by the new government.
We can also expect to see the new government seeking to make progress with their policy agenda and can expect that to take priority.
We will provide ongoing updates as the future of the lapsed Bills and Federal Budget announcements becomes clearer.
If you have questions about the status of a Bill or Federal Budget announcement, please get in touch.
Quote of the month
Staying on the theme of politics, we have a great quote from former Prime Minister Malcolm Turnbull.
Mr Turnbull was recently quoted saying “there is a tendency for people to tell leaders what they want to hear – as a leader you have to work very hard to ensure people tell you what they really think”.
We have observed this to be very true, and it can create a dangerous information vacuum that can result in poor outcomes for everyone.
Whilst the truth may sometimes be very confronting to hear, it is vitally important that we hear it. It is only with honesty and facts that we can make the best decisions.
If you need an example of the power of this concept, go no further than Ray Dalio, the American billionaire who founded Bridgewater Associates.
In Dalio’s 2017 book Principles, he explains how Bridgewater has used the concepts of “radical truth” and “radical transparency” to create the culture that has seen it grow from nothing to be one of the world’s largest hedge funds.
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