TA 2022/1 and TASA – Should tax agents be concerned?

Much has been written on the recent release of the package of draft determinations dealing with the ATO’s long-awaited views on the application of s100A and repeal of the treatment of UPEs with proposed effect from 1 July 2022.?

I don’t wish to add anything to those documents, but what caught my eye and what remains an area of serious concern is the Commissioner’s Taxpayer Alert TA 2022/1, entitled “Parents benefitting from the trust entitlements of their children over 18 years of age”.

Nor do I want to add anything further about the stance taken by the Commissioner in TA 2022/1.?It speaks for itself, but it contains a paragraph which literally blew me away!?That paragraph says:

29. Penalties may apply to participants in, and promoters of, this type of arrangement. This includes serious penalties under Subdivision 290-B of Schedule 1 to the Taxation Administration Act 1953 for promoters. Registered tax agents involved in the promotion of this type of arrangement may be referred to the Tax Practitioners Board to consider whether there has been a breach of the Tax Agent Services Act 2009.

Let’s unpack this to show the seriousness of the Commissioner’s attitude to the offending arrangement, which, as the title suggests, deals with present entitlements conferred on adult children as eligible beneficiaries of trust estates that are controlled by parents.?The concern rightfully focuses on the actual entitlement not being paid to the children, but retained by the parents and used for their own purposes.

So let’s go back to the TA;?the reference to promoters extends to the possibility that tax agents may be the promoters that are the target of the Commissioner, who reserves the right to refer a tax agent to the TPB.?Needless to say, after a “please explain” from the TPB, there is a distinct possibility that it could then devolve into an investigation and, ultimately, disciplinary action being imposed on the tax agent.

The Promoter Penalty (PP) provisions in the tax administration law referred to in the TA are succinct, but very broadly drafted.

In order to enliven the PP provisions there needs to be a “promoter” and a “tax exploitation scheme” (TES).?Putting to one side the possibility that a tax agent could arguably be a promoter, the question is whether there is a TES that arises from the arrangement identified above.? A TES is a scheme that has been implemented, and it is reasonable to conclude that the promoter carried out the scheme with the sole or dominant purpose of getting a scheme benefit, and it is not reasonably arguable that the scheme benefit is available at law.?

This is a very much generalised description about the operation of the PP provisions, but you get the gist.?If you get a financial benefit because you have promoted a scheme that is not reasonably arguable, the PP rules arguably apply to you as a promoter.

So how does this affect a tax agent??Many accountants that I deal with on a regular basis are invariably challenged by trustee controllers to determine the annual trust distribution that includes adult children beneficiaries to take advantage of the arbitrage between the marginal rates of tax that apply to differing individual income levels.? There’s no rocket science here, and this is precisely the conduct that the Commissioner is targeting in the TA.

So the typical agent that might have many trust clients in its practice, might have to deal with each such enquiry separately, advise a client and act on instructions.?But looked at collectively a tax agent engaging in such repetitive action invites the proposition that they have somehow become a promoter of a TES.

These really are concerning times in so many different ways, but the last thing a tax agent needs is to invite ATO and TPB scrutiny because of advising on the tax effect of trust distributions to eligible beneficiaries, so that the trustee can subsequently exercise its discretion to effect the conferral of the entitlements as advised by the agent.

Does the TA together with the Commissioner’s finally published views on s100A spell the end of family trusts that conduct active or passive enterprises? The answer has to be yes - to a degree, and that would only support the anecdotal evidence that trusts have been established solely for tax-minimisation purposes.?

But insofar as the agent is concerned, the Commissioner’s threat of referring the matter to the TPB (or to the DPP for prosecution) suggests that it’d be a brave or foolhardy tax agent who continues on advising and being a party to effecting tax-effective trust distributions for clients in much the same way as has occurred regularly in the past.

Unfortunately, many tax agents will err on the side of caution and now refuse to provide such advice.?Client relationships will be compromised, clients lost and accounting practices adversely affected.?Nothing good will come from this.