IFPA calls for repeal of s100A
The section 100A provisions apply to a much broader range of circumstances than intended and should be amended or repealed, the association says.
The Institute of Financial Professionals Australia has called for a wide range of tax-related changes in its pre-budget submission for 2024–25 including a repeal of section 100A.
The IFPA said with recent court cases confirming that section 100A applies much more broadly than originally intended, the provision should be repealed or amended.
“It seems clear from explanatory materials and contemporary statements from government ministers that s100A was intended to apply to egregious trust stripping arrangements involving the introduction of non-tax or low-tax entities as new beneficiaries,” the submission said.
“The decision by the Full Federal Court in Guardian and BBlood confirms that the provision can, in fact, apply much more broadly depending on the circumstances, but suggests the provision was not needed for at least one of the income years in dispute for which the Commissioner’s Part IVA determination was upheld.
The IFPA said the Guardian decision suggests the Part IVA counterfactual may be more readily sustained than the alternative hypothesis in section 100A.
“Rather than rely on a specific anti-avoidance provision that was drafted at the height of the tax avoidance era and two years before Part IVA was introduced, our association recommends repealing the provision altogether,” the submission said.
“Failing that, the current uncertainty around what represents ordinary family or commercial dealings would be much reduced by deeming the application of funds representing the present entitlements to trust income or capital between members of a family group as defined under subdivision 272-D of the Income Tax Assessment Act 1936 (ITAA 1936) to fall within the exception.”
The submission also called for amendments to be made concerning trust disclaimers following the outcome of the High Court decision Carter.
In 2022, the High Court ruled in Carter’s case that a beneficiary who validly executes a disclaimer in relation to their present entitlement to trust income after year-end cannot escape a tax liability for the relevant amount as a beneficiary’s liability to tax is expressed under s97(1) in the present tense, the submission noted.
“This outcome creates a potential problem for those beneficiaries who may not become aware of their entitlement until well after the close of the income year, which the High Court acknowledged in its reasons for the decision,” the IFPA said.
“The former government noted these issues and undertook to amend the law if the High Court leaves some beneficiaries in a position where they are taxed on an entitlement they may never receive.”
The submission also highlighted that some beneficiaries may not be able to make disclaimers when they have valid reasons for wanting to do so.
“It is suggested that the law be amended to allow section s97(1) to operate on a retrospective basis where a beneficiary makes a valid disclaimer within a reasonable time of becoming aware of their present entitlement or the due date of lodgement of the relevant return,” the submission said.
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