Date posted: 07/03/2022

ATO draft guidance on s100A and Div7A UPE sub-trust arrangements

Feedback received to date by CA ANZ

Thanks to the CAs who have responded so far to the CA ANZ Tax Team’s request for feedback on the ATO’s draft guidance on section 100A reimbursement agreements and when unpaid present entitlements (UPEs) become ‘loans’ for Division 7A purposes:

  • TR 2022/D1 Income tax: section 100A reimbursement agreements
  • TD 2022/D1 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'?
  • PCG 2022/D1 Section 100A reimbursement agreements - ATO compliance approach.

The ATO has also published on its website Trust entitlements – draft guidance which provides an explanation as to why it has released the draft guidance and the final Taxpayer Alert TA 2022/1 Parents benefitting from the trust entitlements of their children over 18 years of age.


Representatives from the professional bodies (including CA ANZ) and tax practitioners participated in confidential consultations on the draft guidance but not the Taxpayer Alert.

CA ANZ’s participation in the confidential consultation process should not be taken as an indication that our association concurs with the ATO’s views expressed in the above publications.

Key themes – Keep the feedback coming

Below is a quick summary of some of the key themes emerging from what you’ve been telling us1.

CA ANZ’s advocacy will reflect this feedback. Some of what follows has already been shared with the ATO, as will this update.

Our submissions to the ATO are still work-in-progress, so please continue to provide feedback to: [email protected] Members of the Tax Team are also responding to phone calls and engaging with CA ANZ tax and public practice committees.

Engagement with the Treasurer, local MPs

A number of CAs urged professional associations to collaborate and engage with the Treasurer’s office about the ATO’s stance. Some participants in discussion forums have also suggested letter-writing to local MPs. The proximity of the 2022 Federal election was noted.

Section 100A - Retrospectivity

The retrospective application date of TR 2022/D1 (refer para 39) has attracted the most ire.

What is the ATO’s s100A audit and amendment agenda?

Following on from the retrospectivity point, some CAs noted the “white (low risk) zone” in PCG 2022/D1, which (in broad terms) indicates the ATO will not look back beyond 1 July 2014 unless the taxpayer’s arrangements fall within para 13 of the PCG.

Some CAs asked whether the ATO has a tactical agenda here, indicating that trustees may experience differential outcomes. That is to say:

  • Some trust arrangements appear to be already on the ATO’s radar and these trustees can expect amended assessments which may or may not lead to litigation, which in turn may or may not support the ATO’s stance,
  • Whilst other trusts with similar arrangements may not be targeted at all.

Or put another way, the “White” zone in the PCG provide little certainty for advisers and their clients.

More s100A examples required

Continuing the uncertainty theme, CAs noted the “Blue” zone in PCG 2022/D1. These are arrangements which the ATO “may” review where one or more of the features in para 26 are present. One CA described this zone as a “no-man’s land” category and suggested the ATO provide more examples of what it is getting at, and then allocating those examples to the green, amber or red category.

CA ANZ also received a number of other scenarios from CAs, requesting the ATO turn these into additional examples for inclusion in the PCG.

Section 100A – Is the Commissioner exceeding his general powers of administration?

The use of Practical Compliance Guidelines (PCG) outlining how the ATO with allocate compliance resources according to where a taxpayer sits on a colour-coded risk spectrum reflects the exercise of the Commissioner’s general powers of administration.

Some have suggested that TR 2022/D1 and PCG 2022/D1 goes beyond this power, straying into the policy-making arena. Example 7 (amounts provided to the parent in respect of expenses incurred before the beneficiary turns 18 years of age) is singled out as an example, with the introduction of the concept of “parental expenses” (read with TA 2022/1). Parliament, not the ATO they say, should be involved in determining what is an ordinary family or commercial dealing.

On this latter point, CA ANZ also notes that CAs from rural and regional Australia and practitioners representing small to medium sized businesses have been particularly vocal, stating that the ATO products reflects a lack of understanding of how family members collaborate in the running of an active business. They differentiated such arrangements from
situations where high wealth individuals use trusts to derive passive investment income and engage in the arrangement referred to in TA 2022/1.

CA ANZ was urged to engage with organisations representing small business and the rural sector.

ATO delay on publishing s100A guidance – Acquiescence

The theme of the feedback received under this heading is along the lines that:

  • The ATO has failed to provide timely guidance on s100A for many years, yet now purports to have held the views it now expresses over past years (the retrospectivity point again),
  • The ATO was aware of s100A arrangements which it now considers egregious, meaning that advisers and their clients were – over a considerable period of time – lulled into the belief that such arrangements were acceptable (or at the very least, tolerated) by the ATO.

TA 2022/1 – The threat of promoter penalties or referral to TPB

Given the comments on s100A above and the fact that ATO guidance is still in draft form, para 29 of TA 2022/1 (which is not a draft) angered some CAs who interpreted this as threatening.

Section 100A – The Guardian litigation, asset protection

Some CAs questioned whether the ATO had “jumped the gun” by not awaiting the outcome of the appeal in Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619. This decision – which found in favour of the taxpayer – is merely noted in TR 2022/D1.

Division 7A – Is the ATO acting because of policy inertia?

Despite Board of Taxation recommendations on UPEs and legislative changes foreshadowed in Federal Budgets and ministerial statements, no legislative changes to Division 7A have been forthcoming.

Some CAs suggested the ATO has taken upon itself the role of addressing this vacuum, taking the position that sub-trust arrangements accepted in TR 2010/3 and PS LA 2010/4 are being used to subvert what the ATO considers to be the true policy intent of Division 7A.

As with s100A, the CAs who raised this point questioned whether the:

  • Treasurer’s office was aware of the ATO’s actions, and
  • ATO was entering the policy-making arena.

The difficulty and hardship of switching to Div 7A complying loan agreements

Some CAs flagged that their clients would have difficulty switching from UPE \ sub-trust arrangements to Division 7A complying loan agreements. They queried whether the ATO fully appreciated the financial hardship TD 2022/D1 would cause for trust entitlements arising on or after 1 July 2022.

The change in timing in which a UPE becomes ‘financial accommodation’ to which Division 7A arises

CAs have said that the change in timing in which a UPE becomes ‘financial accommodation’ for Division 7A purposes is impractical. Furthermore, having different timing depending on how the present entitlement is expressed in the trustee resolution is impractical and creates unnecessary complexity and uncertainty.

Transitioning existing PS LA 2010/4 sub-trust arrangements

Some CAs have asked how will PCG 2017/13 apply for PS LA 2010/4 sub-trust arrangements that mature in the income year ended 30 June 2022. There is a time gap between the application of PCG 2017/13 and the application of TD 2022/D1.

1 In an attempt at brevity, I’ve assumed that those reading this have read the ATO publications or have them handy for reference purposes.

CA ANZ’s free Knowledge Sharing event on the ATO’s s100A and Div 7A guidance

Thursday 17 March 2022

10.00am - 11.00am | Perth    11.30am - 12.30pm | Darwin    12.00pm - 1.00pm | Brisbane   12.30pm - 1.30pm | Adelaide    1.00pm - 2.00pm | Sydney, Canberra, Melbourne, Hobart

Presenter: ATO Deputy Commissioner Louise Clarke (Private Wealth)

Register now