The Australian Taxation Office is making an extra effort to reassure farm family trust operators they have nothing to fear from updates to its guidelines on income distributions to family members if the beneficiaries have been paid fairly.
In the wake of what the ATO acknowledged as "significant interest" in a recent draft public advice update relating to its section 100A reimbursement ruling, the tax office has reiterated payments to adult children whose primary income is taxed at a low marginal tax rate won't attract special scrutiny "if they receive or enjoy the benefit of their distribution" from a farming family trust.
"The vast majority of small businesses operating through a trust are not operating in a way that will attract section 100A," said deputy commissioner Louise Clarke.
She said the ATO was aware its updated guidance - which had been long requested by the tax adviser community - had unsettled some trust groups because it called into question some relatively long standing tax management practices.
However, the section would only apply where there was some sort of agreement whereby a trust payment or other benefit was enjoyed by some other entity, such as an individual already on a higher tax rate.
The ATO would therefore scrutinise if the purpose of that agreement was to ensure someone would pay less income tax by organising to have distributions temporarily parked with a lower taxed individual, such as adult offspring at university or in a part-time or low paid jobs.
"For example, this could include a full-time student receiving an entitlement from a trust under an arrangement where they agree to immediately gift that entitlement back to the trustee," Ms Clarke said.
"The ATO's position is that if the beneficiary of the trust gets the benefit, 100A has no role to play."
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Similarly, the ATO was not concerned when profits from the family business were distributed to members of the family who worked in the management of the business and those family members chose to reinvest the profits back into the business.
Trusts are widely used as business management entities in the agriculture sector, particularly as a non-income earning holding vehicles for family assets.
However, in some cases they generate annual income and make regular distributions to family members.
The ATO's initial "red flag" about some family business trust distributions provoked such a wave of questions and some alarm from trust members and tax advisors the ATO was prompted to extend a public consultation period about its guidance for an extra month until the start of May.
"We have not changed section 100A; 100A remains as it always has been," Ms Clark said.
"What we have done is publish what is at this stage draft guidance for consultation as to how we think the law applies.
"The ATO is not concerned about ordinary family trusts where the relevant family members benefit from the distributions.
She also noted the tax office would not be pursuing taxpayers whose tax arrangements were made in good faith between July 2014 and June 30 this year believing 100A did not apply to them based on the previous 2014 guidance.
"I want to reassure the community - we won't have a retrospective element.
"We stand by our 2014 guidance for this interim period."