For the many business owners who operate their affairs through discretionary trusts, there have been further developments on the ATO’s planned crackdown on certain distributions. The ATO in February updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, there is a potential that the ATO may take an unfavourable view on what were previously understood to be legitimate distribution arrangements.

A Recap from Recent Months

The ATO is chiefly targeting arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO’s new Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children. Released at the same time, the ATO’s new draft ruling states that for the new guidance to potentially apply, one or more of the parties to the agreement must have entered into it for a purpose (not necessarily a sole, dominant purpose) of securing a tax benefit. This sets the bar quite low and may capture a number of arrangements previously thought to be within the law. 

ATO’s Clarification

No doubt reluctant to upset small business voters during an election campaign, the government has recently tried to take the heat out of this issue by having the ATO ‘clarify’ that its new guidance material will not apply retrospectively and that “ordinary advice services” for afee will not be subject to the promoter penalty rules. If necessary, the government has indicated it will change the law “should any adverse retrospective impacts arise”. While this is very welcome news, it only focuses on the application date of the guidance material. It changes nothing going forward, including issues around adult beneficiaries and the limited scope (in the ATO’s view) of the “ordinary family dealing” exception.”

Given the government’s announcement, there is now no need to revisit pre-1 July 2022 distributions to confirm that section 100A does not apply. For its part, Labor’s Stephen Jones has been reported as supporting the government’s approach on retrospectivity.

Moving Forward

A conservative approach would be to adopt the“beneficiaries must benefit” approach that underpins the guidance material, as much as that might be a worry for controlling individuals who have in the past benefited from tax optimisation without actually giving their adult children beneficiaries access to their present entitlements. This means the days of controlling individuals taking loans from the trust as they go along and squaring them off through the trust accounts after year-end might soon be over. Alternatively, one could continue to deal with 2021/22 trust distributions in exactly the same way as in the past.

The law has not been changed and the draft ruling is at odds with a recent Federal Court decision. Such an approach would reflect the view that the Commissioner is wrong in his narrow interpretation of what constitutes ordinary family dealings. That could be a brave strategy, however, as we do not know when or how the draft guidance material will be finalised, while the above Federal Court appeal decision is unlikely to be handed down this side of 30 June 2022.

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This is a de Kretser Client Information Newsletter keeping you on top of the issues, news and changes you need to
know. Should you require further information on any of the topics covered, please contact us via the details below.
T: +61 3 9550 6900 E:admin@dekretser.com.au

The ATO has just updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, there is a potential that the ATO may take an unfavourable view on what were previously understood to be legitimate arrangements.

Background

For various reasons, including legal tax minimisation and asset protection, many business owners operate their affairs through a trust structure. While trust structures are legitimate, the ATO has become increasingly sceptical of the motivations behind the use of trusts which it believes in many cases are motivated chiefly by tax minimisation. In February 2022, the ATO updated its guidance directly focusing on how trusts distribute income, and to whom! Consequently practices which may have once been previously accepted may now not be. This may result in higher taxes for family groups in particular – both going forward, and potentially retrospectively.

Target

The ATO is chiefly targeting arrangements under s100A of the Tax Act, specifically where trust distributions are made to a low rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO’s new Taxpayer Alert (TA 2022/1) illustrates how s100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children. Released at the same time, the ATO’s new draft ruling states that for the new guidance to potentially apply, one or more of the parties to the agreement must have entered into it for a purpose (not necessarily a sole, dominant purpose) of securing a tax benefit. This sets the bar quite low and may capture a number of arrangements.

Assessing the risk

The ATO released an accompanying guideline providing taxpayers with a risk assessment framework for them to work through with their accountants to assess the level of risk involved in current and past distribution arrangements. In the guideline, the ATO has provided a number of examples of high-risk arrangements that are actually quite common and include:

What next?

The ATO’s new ruling and guidelines are still in draft form, and are expected to be finalised soon. Once finalised, they are intended to apply both prospectively and retrospectively. However, for entitlements conferred before 1 July 2022, the ATO has indicated it will stand by any administrative position reflected in its prior website guidance before the new material was released.

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This is a de Kretser Client Information Newsletter keeping you on top of the issues, news and changes you need to
know. Should you require further information on any of the topics covered, please contact us via the details below.
T: +61 3 9550 6900 E:admin@dekretser.com.au

I have been working in the accounting industry for over 50 years. There is so much I can speak about in regards to changes in technologies, software development, shifts in clients’ needs and so on. The one thing that stands out the most for me is that throughout the years there has been a rise of female Accountants in the workplace. It doesn’t seem that long ago that the industry, traditionally a prominently male industry, started recognising female accounting professionals. There has been an increase in gender diversity yet I can still remember a time where women had to fight for their title.

I believe the industry has taken significant steps to accommodate and welcome female accountants but we still have a long way to go. I am celebrating International Women’s Day (IWD) 2022 to bring awareness on gender equality. There has been an increase of female professional Accountants throughout the years and their contribution to the profession and industry has been immense. I want to break the bias.

de Kretser has a powerhouse of talented women

I work amongst these women and I can wholeheartedly say they are the reason the company is what it is today. They’ve held up the fort throughout the years by supporting business activities, ensuring workflow and managing client portfolios. They brought something I could never offer myself. Thank you Atisa, Kirsty, Ainsley, Cindy, Kimberly and especially my wife Suzie for playing essential roles in the business.

I’ve passed on the baton to my daughter Atisa, with whom I’ve created a partnership and developed a wonderful working relationship. Atisa is also part owner of de Kretser Chartered Accountants and a Principal. It has become her time to lead the new generation. She is a systems thinker and always sees the bigger picture. I commend Atisa for her hard work and for everything that she’s achieved from such a young age.

I recently had a nice talk with Atisa over coffee and she told me something I will never forget. While she was studying to become a CA, many women were discouraged from pursuing their studies as they felt like they were expected to fail. This absolutely shattered me as I never imagined it to be this way.

I want to underline the hard work, passion and courage of all the women in the industry and my way of showing support for International Women’s Day 2022 is through this heartfelt letter. This one goes out to all the remarkable women in the industry – To the ones I’ve never had the pleasure of working with and to the ones that have brought me so much insight throughout the years, I hope the accounting industry has treated you well. Thank you for your contribution to the profession.

Sincerely,

Patrick de Kretser

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It is in the nature of our industry to juggle and balance numbers and we must admit that the world events from the past few years has our team working on overdrive. But it only dawned on us recently- when we found out about “International Boost Self-Esteem Month” that we realised just how crucial self-care is, not only for personal well being, but for business productivity as well.

Throughout the month of February, we’ve taken our team on an important journey of self-reflection, self-evaluation and self-care. Our team building activities, meetings and celebrations created positive outcomes. We addressed crucial subjects such as communication in the workplace and the importance of tone of voice. We strengthen our relationships, which in return, boosted our morale and increased productivity. Here are a few lessons that our team gathered from Boost Self-Esteem Month.

Taking the time to oversee health and wellbeing isn’t a luxury… it’s a necessity!

We know too well the effects of low self-esteem, especially in the accounting industry. Employees who have low self-esteem can have low confidence, which can also lead to self-doubt. We work in a field where critical thinking and problem solving skills are the key to success. This is why it is important to reduce the constraints limiting business productivity and the reason why we help our team manage and work on their inner thought process. It is our duty of care to ensure employees have a healthy opinion about themselves.

“Self-esteem requires work, time and effort. It requires obligations and commitments“

We’ve always made it our top priority to ensure our team’s morale stays elevated. We created a positive work environment, one that ensures all staff feel safe, secure and that allows for personal growth. de Kretser Chartered Accountants provide training and tools including modern accounting softwares to ensure employees are continuously supported and well surrounded.

”Self-esteem is creating the better version of yourself ”

Our team manages portfolios for various types of clients, across different industries such as hospitality and construction. We also work closely with high-net-worth individuals who hold personal and sensitive information. This is why face to face meetings are such a crucial component to building trusting relationships. We need to be able to communicate efficiently and ensure business and clients are on the same page. We believe there is a strong need for Accountants to be relatable. It may not be a trait commonly found in your everyday Accountant but for our team at de Kretser, it is our point of difference. It means we are continuously improving our communication skills and learning how to respond to clients’ needs and wants. Learning to be more relatable is an acquired skill and one that lead to creating a better version of ourselves.

“Self-esteem in business means asking for help when required”

Being in business doesn’t necessarily mean you need to have all the answers, play different roles or even wear different hats. It is ok to ask for help and guidance along the way. There are many internal functions as well as operational aspects to a business. For example, overseeing areas such as payroll, bookkeeping and compliance can be time consuming tasks, which may take away from creating further business opportunities or impact on the business’ main focus.

All in all, here’s what you need to remember:

• Be kinder to yourself, especially when learning new tools, tricks or starting a business
• Use your network and connections to your advantage. Collaboration is key as we all possess a trait or skill that is deemed valuable to the next person. This is a great way to support and boost each other’s self-esteem.
• Don’t be afraid to ask for help. Trust that when there is a situation out of your control, there will always be professionals waiting to assist.

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