Trust Reimbursement Agreement – A Dark Cloud Looming?

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Trust Reimbursement Agreement – A Dark Cloud Looming?

Section 100A of the Income Tax Assessment Act 1936 was introduced in 1979 as a specific anti-avoidance measure to tackle ‘trust stripping’ schemes.

In its long 40 year history, there is surprisingly very few cases involving s100A and trust stripping. We’ve only had a handful of cases such as the Prestige Motors, Raftland, Idlecroft and East Finchley providing us guidance on the Court’s and Commissioner’s views. But the landscape of s100A may be set to change very soon as some recent ATO audit activities suggest that the old s100A is getting some attention.

Generally, s100A is triggered if a ‘reimbursement agreement’ is present and involves making a beneficiary presently entitled to trust income where:

  • Someone other than the presently entitled beneficiary actually benefits from that trust income; and
  • The agreement was entered into for a purpose that includes obtaining a tax benefit.

Agreements entered into in the course of an ordinary family or commercial dealing are specifically excluded. Unfortunately, what constitutes an ordinary family or commercial dealing is undefined and there is little guidance from the available court cases.

Where s100A operates, the distribution of income is disregarded and the trustee will be assessed on the amount at the top marginal rate. The tax consequences are significant and it is worrying that the legislation as it currently stands may be read more expansively by the ATO than was originally intended by Parliament.

If you would like to discuss the above please contact Gary Lim.



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