Much has been made recently of the ATO’s confirmation of its 2014 fact sheet position in relation to 100A. To summarise the situation for non-tax people, you can’t use discretionary trusts to stream income to tax privileged family members like university aged non-working adult children unless use & enjoyment of the cash follows the income. There are (as always) some narrow exceptions, but on the whole, streaming for tax minimisation only is now officially dead in the water.

But, why such backlash from the tax accounting community here?

Part of the answer is that it’s such a widespread and generally accepted accounting fiction, namely that family trusts could be used to distribute income to one beneficiary while the cash goes to another. Secondly, some tax practitioners may have been doing this for so long that it’s a shock to them to now discover that they may have been involved in avoidance or even evasion activity. A third reason is baked in client expectation; one client does it and talks to another and before long, if you’re the accountant who is NOT facilitating that scheme, then, you’re the guy left without any clients or at least a less profitable practice than you may otherwise have had.

Whatever the reason, “cash over there and income over here” has been comprehensively rebuked by this latest round of consultations & those who fail to heed the warning going forward have exposed themselves to clear and present audit risk.

It should also be said that, while the ATO is holding strong on their assertion that any tax driven streaming as from 1.7.14 is offensive and also NOT retrospective based on their position in the July 14 fact sheet, they have also clearly articulated that they will NOT be dedicating audit resources to hunting down historical infringements which are not already under review.

Reading between the administrative lines, where a taxpayer corrects future behaviour, the ATO will (likely) continue to let the flea infested dog sleep. If you read the 2014 fact sheet, it’s pretty hard to disagree with that position. Sure the ATO could have made more noise and forced their view down the throat of the tax community back in 2014 with more vigour. However the general premise of their position, that you must return your income, can’t be disputed. 6-5 & 6-10 make it clear that income derived by you must be declared by you.

Some accountants may argue that the trustee derived the income not the beneficiary, however trustees very rarely derive and are assessed on income. Div 7A was also covered off in that same fact sheet and has been again reaffirmed (more thoroughly) in the February 22 document package.

In short, this appears to be a clash of what’s practical vs what’s technical. Tax law is hard, but taking the ostrich approach to practice is never a good idea. Schemes to avoid or reduce tax are a fool’s game. Any element of artificiality to shift and/or reduce the tax burden of an individual or family group will ultimately be struck down one way or another.

To discuss your circumstance, call Chris at Solve on 0414 985 724 or email