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100A changes risk approach, says law firm

Accountants will need strategies to manage trust distributions.

Tax&Compliance Tony Zhang 05 April 2022
— 2 minute read

Uncertainty around section 100A increases the need to protect against risks early in the income year, said Cooper Grace Ward partner Fletch Heinemann.

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This includes taking into account future distributions as ATO audit activity begins to pick up.

Accountants will now need to place a greater focus on checking evidence and amounts at risk along with reinforcing the legal position for the trust.

Mr Heinemann said practitioners should assess their client base closely and prioritise which cases would warrant increased compliance scrutiny from the ATO.

“The key here is that we need to understand the extent of the historical risk. Some advisers have clients across both the blue and red zone of risk which can become complicated,” he said.

“We need to drill down into the facts of those cases so we can figure out if it is just an audit risk or because it’s sitting within one of the zones, does it actually have a section 100A legal risk on the timing point?

“If it does have a section 100A risk on the timing point, then from there, is it within the scope of an ordinary family or commercial dealing? Advisers will then need to have a look at the case law on that.”

As the ATO is finalising its draft guidance, Mr Heinemann said the ATO would most likely increase audit activity and would target the taxpayer alert risks first, which focused on parents benefiting from the trust entitlements of their children over the age of 18. 

“So if you’ve got anything sitting in the taxpayer alert one, I would be triaging that and dealing with that first before you get to your blue zone ones,” he said.

“In terms of the time frame for the ATO, ‘how long is a piece of string?’ These draft rulings were supposed to be released in February 2020 and the risk has now been extended by two years.”

Mr Heinemann said the audit activity had already started and it’s going to ramp up. 

“As more audits go through your client base, it’s going to affect behaviour,” he said.

“Realistically for this income year, we’re going to have to be super careful especially if it is still in draft form and it’s not finalised during that time.

“You’re really going to have to think about the issues if you’re going to do your distributions that are the same as previous income years.

“But certainly if you’ve got a present entitlement and an immediate gift back situation, that’s a big ‘no’ and I’d be striking that out as a possibility for this income year as the ATO’s not going to back away from that position.”

100A changes risk approach, says law firm
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Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.

You can email Tony at This email address is being protected from spambots. You need JavaScript enabled to view it.

Tax&Compliance