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7 April 2022

Certainty and stability for family trusts

The Morrison Government recognises that trusts are a legitimate and important way for families – particularly those running small businesses – to manage their financial affairs.

The Government welcomes the Australian Taxation Office (ATO) clarifying yesterday that its draft guidance on ‘section 100A’ (draft TR 2022/D1 and draft PCG 2022/D1) will not apply on a retrospective basis.

This draft guidance replaces the ATO’s 2014 guidance, which taxpayers and their advisers have been relying on, concerning when a beneficiary’s entitlement to trust income arises out of a reimbursement agreement.

Confirmation that taxpayers can continue to rely on the 2014 guidance for matters that arose while that guidance was in place will be welcomed by small businesses who in good faith followed this guidance.

The ATO’s clarification that ordinary advice services provided in exchange for an advisory fee are not subject to the promoter penalty provisions will also be welcomed.

While these are important clarifications from the ATO, the Government will continue to monitor the consultation process closely and will consider any appropriate changes to the law should any adverse retrospective impacts arise. The ATO has recently extended the consultation period to 29 April 2022, and the Government encourages all interested parties to make submissions to the ATO as part of this process.

The Government also notes the significant decision handed down yesterday by the High Court of Australia in Commissioner of Taxation v Carter.

The decision concerned the effect, under tax law, of a beneficiary ‘disclaiming’ a distribution from a trust. The High Court’s determination means that, in certain circumstances, beneficiaries of a trust may still be liable to pay tax on a trust distribution they never received or had disclaimed.

While the decision brings some clarity to a complex area of both tax law and the law of trusts, the Court itself noted that both its interpretation, and the alternative interpretation offered by the respondent, were capable of giving rise to apparent unfairness.

The Government will carefully consider the implications of the decision, particularly for hard‑working small business families, whether it raises any inequitable outcomes that may not have been the intention of the tax law, and whether they can be dealt with by legislative change.

A re‑elected Morrison Government will not hesitate to make common‑sense legislative amendments to provide certainty for family trusts and prevent unfair application of the tax law. The Government will continue to back small businesses through cash flow support, tax relief, supporting business to invest in their digital capability and boosting skills and training as part of our plan for a stronger future.