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Legal fix only realistic solution to 100A, says law firm

The complexities stemming from the draft ruling mean Parliament needs to take action.

Tax&Compliance Tony Zhang 28 March 2022
— 1 minute read

There is no easy solution to issues with the section 100A draft ruling, says a Cooper Grace Ward tax partner.


Fletch Heinemann said that although the ATO was absorbing feedback from the accounting industry, he thought it would “fall on deaf ears”.

The fundamental problem was how section 100A was drafted in the first place, he said.

“It was drafted in 1979 back in the days where they drafted legislation really badly,” he said at the Cooper Grace Ward adviser conference last week.

“It's stuck in there in its current form and so really it's the drafting of the legislation that's the biggest problem.

“Realistically, to get this fixed this needs to go to Treasury. This is now a Parliament question, not an ATO question.”

Mr Heinemann said the path to a solution would be similar to how the central management and control position was changed in the Bywater Investments Ltd & Ors v Commissioner of Taxation case. 

"The ATO had gotten all this feedback from the accounting profession, in particular, saying that's not workable. This prompted the Treasurer to do something about it and soon after an announcement was made to amend the legislation so that it goes back to the previous position," he said.

Mr Heinemann said the key problem to be addressed was that the 1979 clause was drafted for a particular purpose back then.

Section 100A was inserted in its current form into the ITAA 1936 on 13 March 1979 to apply to assessments in respect of the 1977–78 and later income years (from 1 July 1977). 

However, the provision applied only to arrangements where trust income was paid to or applied on behalf of a beneficiary after 11 June 1978.

That was the day on which the government announced its intention to introduce legislation to overcome certain tax avoidance arrangements designed to enable trading profits and other income derived by trusts to escape taxation.

“It's being used for another purpose now and it needs to be amended so that it can be fit for purpose,” Mr Heinemann said.

“The ATO is using an old provision for a different purpose that doesn't sit with the legislative intention of Parliament back then. 

"That's really how we can make a change on this. You want to encourage your peak bodies to put in submissions on that and if you want to, you can encourage clients to harass their MPs or the Treasurer because that’s really where the change will be.

“I just get the sense that anybody who's writing back to the ATO on this is going to fall on deaf ears.”

Legal fix only realistic solution to 100A, says law firm
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Philip King

Philip King

Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.

Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.

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