In 2014 the “The Lego Movie” featured the hit song “Everything is AWESOME!!!”. Two years later in 2016 the Australian Taxation Office (ATO) started preparing guidance on section 100A of the Income Tax Assessment Act 1936.

After six years the ATO has released its ‘draft’ guidance on section 100A. The sequel to The Lego Movie only took five years to produce and it was not a draft movie.

However, unlike in The Lego Movie, perhaps everything will not be “awesome” for many family groups given the ATO views of what is “ordinary” (family or commercial) dealing. Perhaps an analogy with The Lego Movie is unrealistic as the movie included a place known as Cloud Cuckoo Land while the ATO is considering the real world. Or is it?

The guidance is in the form of a draft Taxation Ruling (TR 2022/D1) and Practical Compliance Guideline (PCG 2022/D1) coupled with Taxpayer Alert (TA 2022/1).

Keeping with the draft theme, the ATO also released draft Taxation Determination (TD 2022/D1) on when an unpaid present entitlement (UPE) held on sub-trust becomes financial accommodation for purposes of Division 7A. This will see the ATO’s existing guidance on UPEs in TR 2010/3 and PSLA 2010/4 withdrawn from 1 July 2022.

There is much to digest in the guidance on section 100A and UPEs and as a firm we will prepare detailed articles on the ATO’s ‘draft’ views, and finalised views in TA 2022/1, and what those views may mean for your arrangements.

In the interim we are slightly perplexed at the following.

A feature of Practical Compliance Guidelines is a matrix showing arrangements that the ATO considers are low, medium, or high risk. Typically, the matrix uses green, amber, and red with other colours (white, blue, yellow) if there are more subcategories.

PCG 2022/D1 includes a matrix that includes green as low risk and red as high risk. One might expect that amber is medium risk. That expectation would be incorrect, blue does.

Imagine the ‘fun’ explaining to a client in a professional firm that the client’s arrangements are amber under PCG 2021/4 about professional firm profits but blue under PCG 2022/D2 on section 100A. When the client asks, “what is the difference”, you can reply, “nothing, blue and amber both mean medium risk”.

Separately, the ATO has lodged an appeal to the section 100A case of decision in Guardian AIT Pty Ltd ATF Australian Investment Trust v FCT [2021] FCA 1619 that we discussed here. The outcome of that appeal and the decisions in other cases on section 100A may help shape the final form of the guidance on section 100A.

Sladen Legal’s tax team regularly advises on section 100A and UPEs and will apply this knowledge and expertise when reviewing, and publishing articles on, the guidance over the coming weeks. If you have any questions about what the ATO views may mean for you and your arrangements, please contact:

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au

Laura Spencer
Senior Associate
M 0436 436 718 | T +61 3 9611 0110
E: lspencer@sladen.com.au

Edward Hennebry
Senior Associate
T +61 3 9611 0113 | M +61 405 847 261
E: ehennebry@sladen.com.au