Episode 18 — Unpacking the ATO’s section 100A draft guidance

In this episode of TaxVibe, Robyn chats with Jonathan Ortner, Tax Director, Arnold Bloch Liebler, about section 100A of the Income Tax Assessment Act 1936 that deals with trust distributions and what the ATO’s recent draft guidance materials mean for you and your clients.

They explore:

• What section 100A is and why it’s in the spotlight at the moment
• The conditions under which section 100A applies and its requirements
• Guidance from cases including East Finchley, Prestige Motors, Idlecroft and Raftland
• Where to from here for section 100A, including the pending court appeal in Guardian

Host: Robyn Jacobson, CTA 
Guest: Jonathan Ortner, FTI

For more information about The Tax Institute: https://www.taxinstitute.com.au/

Transcript

 Robyn Jacobson:
Hello, and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robin Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. We love the vibe of tax and here at The Tax Institute, we do tax differently. I'll be chatting with some of the tax professions great thought leaders who will share valuable and practical insights you may not hear every day. We hope you enjoy this episode of TaxVibe.

Robyn Jacobson:
I'm joined by Jonathan Ortner. Jonathan is a partner in Arnold Bloch Leibler, Sydney taxation group. He practices in all areas of direct and indirect tax with a particular focus on the taxation of trusts and corporate income tax and mergers and acquisitions. Jonathan has particular experience in dealing with the ATO on complex tax issues in a dispute resolution context. He is a keen and active member of the tax community, as well as presenting on tax topics at various sessions and authoring a number of published articles, papers and bulletins. Jonathan is the deputy chair of The Tax Institute's national SME technical committee, and is recognized as a key tax lawyer in the legal 500 Asia Pacific. Jonathan, a very warm welcome to TaxVibe.

Jonathan Ortner:
Thanks Robyn, thanks for having me today.

Robyn Jacobson:
It's wonderful to have you on board. We recently had you join us for a member only webinar run by The Tax Institute as part of a panel with the ATO. We were focusing on section 100A, which will be our focus today. So very pleased to get you back again. I just want to set the scene for our listeners. I'm describing this as the biggest development in the taxation of trust income in more than 10 years. The 23rd of February this year, the ATO released long awaited draft guidance materials on section 100A. And what I'd like to do with you is unpack this provision, understand what it is, what it does and broadly, why is there such concern across the tax community about the guidance materials that have been released? So the materials without diving into specific details now are broadly three products. We have a taxation ruling, TR 2022/D1, a draft practical compliance guideline PCG 2022/D1 and a taxpayer alert TA 2022/1. So with that overview, could you run us through what exactly is 100A and why is it in the spotlight at the moment?

Jonathan Ortner:
Sure, 100A is a specific anti-avoidance provision, which was originally designed to counter tax avoidance through trust stripping schemes. But it also remains a clear threat in any circumstance that involves the distribution of trust income, where cashflow is not aligned with the legal entitlement and the enjoyment of the benefit of the funds by the beneficiary is deferred or does not eventuate. The provision works by effectively deeming there to have been an accumulation of trust income by the trustee with the result that the trustee is assessed at the highest marginal rate of tax.

Jonathan Ortner:
As to why it's in spotlight, the section has been part of the Australian tax landscape, as we know since 1979, but it's only recently become an area of significant focus within the ATO. It's certainly a fair question as to why it's in the spotlight. What currently concerns the ATO is factual situations where a beneficiary is made presently entitled, but at the end of the day, someone else benefits. So perhaps in their view, this has become more prevalent and a crackdown is warranted. However, in saying that discretionary trust have been the subject of intense scrutiny by the ATO over the last 15 years. This to me really appears to be just another attack on trust, more broadly. Their initial public views on 100A, expressed as far back as 2009, which was at the same time as the issues relating to UPEs and division 7A led to tax payer concern and cause for guidance material. So it really was inevitable that we would end up where we are. And as I always say, be careful what you wish for.

Robyn Jacobson:
Can you provide some insights as to why this has now got the momentum that it does? What was the Genesis for the ATO starting to focus on this provision given it's been around for more than 40 years?

Jonathan Ortner:
I think just going back to what I said previously, in terms of why the ATO is focusing on it, perhaps it's in relation to just their broader attack on trusts or their genuine dislike for entitlements or the cash not flying with the entitlements. So this has prompted them to release guidance on their views in relation to the application of 100A. We first saw their comments in 2014, where they provided examples of the types of arrangements that they thought 100A applied to. And when the ordinary family or commercial dealing exception might apply. On the back of that significant concerns were raised by advisors and taxpayers in relation to the way that the commissioner was proposing to apply 100A, which was far broader than previously applied by the ATO and arguably far beyond its intended scope. And so that really resulted in a demand for a proper guidance product, so that advisors and tax payers understood what risks existed in relation to the types of arrangements that were otherwise previously thought to be common to private family groups.

Robyn Jacobson:
There's been no shortage of seminars and discussions and conference sessions discussing 100A in the last five to 10 years. And anyone who sat through the ATO speaking about 100A would understand that it has been on their radar and many practitioners have also been putting out cautionary tales about the scope of 100A. So this still seems to have caught the profession by surprise, given the scope of the guidance that's now been published. Why do you think that is?

Jonathan Ortner:
The ATO's taking a strict view on certain aspects of the law, which appears to be contrary to past practice. The way that the Commissioner is now proposing to apply at 100A, again, arguably goes far beyond its intended scope. Examples include typical family dealings, which advisors otherwise believe fell within the ordinary dealing exception. That includes arrangements like the retention of trust funds, the gifting or assignment of UGEs and the utilization of losses. And as a result of that, most private groups could in some form be distributing trust income in a way that puts them in the ATO's red zone. That's possibly prompting a review or audit action. So taxpayers are really bound to be upset given this new approach by the ATO and the fact by the way, that there's no limit of amendment period.

Robyn Jacobson:
So let's unpack the provision a bit more so we can understand how it operates. It has been around in the law since 1979. It took effect in 1978, which was the original date of announcement. How does the provision work? What are the conditions that trigger 100A?

Jonathan Ortner:
The first thing to note with 100A is, it's self executing and it applies if the criteria of its operation exists. So unlike, for instance, the provisions of part 4A, 100A is not made depending on a determination being made by the Commissioner. That's the first thing to know, so taxpayers must self-assess. For 100A to apply there are a number of key requirements. The first is that there must be a beneficiary who is presently entitled to a share of the income of the trust estate, whether actually, or on a deemed basis. There must be a reimbursement agreement, which will be the case where firstly, there is an agreement and the broad definition of which does not include conduct or a transaction entered into, in the course of an ordinary family or commercial dealing. The identified agreement must provide for benefits to someone other than the presently entitled beneficiary that may or may not be equivalent value to the incoming question. And the identified agreement must have been entered into with a tax reduction purpose. So we need a present entitlement, we need a reimbursement agreement and we then need that present entitlement to arise out of the reimbursement agreement. So a lot to chew through, but at its simplest level those are the key requirements.

Robyn Jacobson:
All right, let's unpack some of that. So with the beneficiary who must be presently entitled, are there any conditions around what sort of beneficiaries we're talking about?

Jonathan Ortner:
Yes, a beneficiary under legal disability will not be caught by these provisions, but otherwise, a beneficiary presently entitled will be caught.

Robyn Jacobson:
All right, so that would exclude our minors and people who are bankrupts and so on.

Jonathan Ortner:
Correct, and you'll see an example in the Commissioner's tax ruling, I think it's the tax ruling, not PCG, that talks about a minor being entitled to income in a testamentary trust where 100A won't apply until such time that minor turns 18. And then, obviously the provision may be switched on, it needs to be looked at.

Robyn Jacobson:
All right, reimbursement agreement. It sounds like I've incurred something and I'm going to be reimbursed for that amount. Does that have any relevance whatsoever to what we're talking about here?

Jonathan Ortner:
I think the thing to note and what the courts have said is that you can't break up the term reimbursement agreement and just focus on the ordinary meaning of reimbursement and try and work out what that actually is. You've got to look at the provision which define a reimbursement agreement. And really that involves a situation where benefits go to someone other than the presently entitled beneficiary. That can be at it's very simplest form, you, Robin being made presently entitled to $100, but that $100 going to me instead, that's a reimbursement agreement potentially because I'm receiving the benefit and you're the one entitled not getting the benefit of cash.

Robyn Jacobson:
And that could be money paid to you by the trust? It might be an asset being transferred across to your property? It could be services being provided? So it's quite broad.

Jonathan Ortner:
It could be by the trustee, that's one thing to note. Or the cash could flow to you and you could give it to me. So that's still a reimbursement and that's important to remember. It doesn't only involve situations where the cash doesn't flow to you. It's where the cash doesn't stay with you necessarily.

Robyn Jacobson:
Isn't my choice? If I'm made presently entitled, I get my $100 from the trust, and then a week or three years later, I choose to then gift it to you. What's wrong with that?

Jonathan Ortner:
Well, it depends as always on the facts and the arrangement. So, three years down the track with nothing more will not invoke this revision. But if there's repeat behavior of the gifting of entitlements and there's clear evidence of an arrangement that has been entered into with a view to reduce tax on that entitlement, then you need to be aware of this provision as it may apply.

Robyn Jacobson:
Perhaps the way I could describe it, Jonathan is, it's a separation of the cash from the benefit as you were articulating in your opening comments. If there's a situation where someone is being made presently entitled, but they ultimately don't get to keep that amount because there's an arrangement to pass it on. And the typical arrangements we've seen is where the adult child who's at university or on a low income, they get topped up to one of the income thresholds so that they're still below the top marginal tax rate, but able to benefit with those marginal rates. Then they're passing the benefit of that distribution on to their parents who if the parents had received the distribution from the outset, would've been taxed, presumably at the top marginal tax rate, given the dollars involved. So I think that the ultimate problem here is you've got someone who, if it was always intended the parents get the distribution. Why then did you distribute to the adult child? Why didn't you just give it to the parents originally? And it comes into this third element about the tax purpose and why you did it. There might be 50 reasons why commercially you did it, or for family reasons but you were talking about how there's a purpose of reducing or deferring income tax. Now, the purpose of using the marginal tax rates might be just one of those purposes. Is that enough to potentially get us into this provision?

Jonathan Ortner:
I think just one point before we go there to note is that the example you just described is something that many advisors would've otherwise felt previously fell within the family dealing exception. And so that's a reason why many are upset. The other thing to note is that a reason for doing or a reason for giving effect to an arrangement in a way that you described. So as to increase the wealth of the family group on a post tax basis is not accepted by the ATO as being something that has at its pursuit or in a familial end. I just wanted to make those two points.

Jonathan Ortner:
In terms of your question, there's two parts to this. The first is to work out whether the ordinary family or dealing exception can apply and embedded within that is some consideration of purpose of the arrangement and whether it's motivated by tax or not. Now, if tax, taxating is sort of incidental to the overall pursuit of the familial end, then the Commissioner says that it won't be one that is set with a tax avoidance purpose, and perhaps may come within the exception. If for whatever reason it doesn't come within the exception, then you still need to go through the other requirements of 100A. One of those requirements is the tax reduction purpose requirement. And really all you need to find there is a purpose of achieving a lower amount of tax than what otherwise might have been paid in a counterfactual, a reasonable counterfactual scenario. And if the answer to that is yes, then you may fail the tax reduction purpose.

Robyn Jacobson:
This is why it's so much broader than part 4A, you've already mentioned that it's got an unlimited amendment period, whereas part 4A has only four years. Secondly, part 4A of course, has a sole or dominant purpose of entering into the scheme or the arrangement. Whereas this is a purpose. So it seems to be so much easier to full foul of 100A than it does part 4A.

Jonathan Ortner:
Well, definitely because it doesn't require, at least in the context of the tax reduction purpose requirement, it doesn't require a dominant purpose. There's no dominant purpose test. So it's just a purpose, no matter how minor that purpose may be, that's enough to fail the, or satisfy rather the tax reduction purpose. So yes, and the other thing to note though, as well is part 4A is an objective test. There's elements of the tax reduction test that require subjectivity to come into it, to get into the mind of the relevant person that had the tax reduction purpose. That's also a key distinction.

Robyn Jacobson:
Back to real world, we've unpacked all this theory and we've explained what the provision does, but in practice, how does any practitioner or taxpayer work out whether or not they have fallen foul of 100A? You say it's a self-assessing provision. So it's not relying on a determination by the Commissioner. How do we know where the goalposts are, or the red flags down at the surf beach to know whether or not we are within that safe zone or whether we've fallen outside? It seems incredibly gray.

Jonathan Ortner:
Yeah, what we know from cases such as Prestige Motors and IDLECROFT is that the examples given in the extrinsic materials were intended to be illustrative and not an exhaustive statement. Som what we might have previously thought of being the types of arrangement, subject to 100A, like blatant and complex trust stripping schemes. Schemes devised by promoters involving artificially created paper losses. Those aren't the only types of situations where 100A can apply. Really it's a provision that remains a clear threat in any circumstance involving trust distributions, where cashflow is not aligned with the legal entitlement. If that's something that arises, you really need to take a step back and look at the arrangement in its totality, work through the provisions of 100A and ask yourself whether you're caught out.

Jonathan Ortner:
In my opinion, the [inaudible 00:17:03] of scheme 100A was introduced to counter, I think are important to establish some sort of practical boundary between what is okay and what is not. So it's not as simple as taking the Commissioner's examples in the tax ruling and the PCG and putting your hand up and conceding that a 100A applies, that won't always be the case. I think you really need to drill down into the cases into the extrinsic materials, into the provision, understand the context and the purpose, and take a proper approach to statutory interpretation, to work out whether your particular arrangement is caught.

Robyn Jacobson:
Let's take a look at some of the cases that have come before the courts and particularly some of the high profile cases and what do they have in common? And is there something unique to those cases that we took some comfort from and therefore dismissed 100A is being relevant to the sorts of arrangements that are typical in family groups?

Jonathan Ortner:
The four cases that we're all familiar with are Prestige Motors, IDLECROFT, Raftland, East Finchley, and now obviously Guardian, but I'll leave that to one side for now. Judicial consideration of 100A appears to have started with Dr. Thomas and East Finchley and he migrated to Australia in 1978, established a discretionary trust and established a discretionary trust with a corporate trustee. In 1983, the corporate trustee distributed the income of that trust to various persons who were relatives of Dr. Thomas and valid objects of the trust. This included 126 relatives who were overseas residents and who received $585 each, which was neatly the tax free threshold for non-residents at the time. So no tax was paid in that situation.

Jonathan Ortner:
In Prestige Motors, there were three separate transactions that were largely centered on the transfer of a business to a unit trust and units being issued to a company with losses and to a tax exempt organization. Again, the arrangement had the purpose of allowing the business profits to be distributed effectively tax free.

Jonathan Ortner:
In IDLECROFT a joint venture between various trusts was put in place where the trustee of those trusts inserted a beneficiary that had substantial tax losses and so paid no tax upon the appointment of income to it.

Jonathan Ortner:
Finally, Raftland, although a very complex case and one that the high court ultimately found to be the subject of a sham involved, the introduction of unit trust with substantial tax losses and entitlements not being paid in cash other than a single sum of a small amount. And there was some evidence that there had never been any intention of making any further cash payments. So we can certainly see a trend here. It was only the egregious paper schemes that previously came before the courts, and that appear to reflect the types of arrangements, the extrinsic materials that a 100A was inserted to stamp out. So rightly or wrongly many believe these cases provided a sort of limiter on how broadly 100A could be applied.

Robyn Jacobson:
So if we combine the decisions in these cases, all of which I think we can comfortably describe them as being egregious or blatant schemes.

Jonathan Ortner:
Yes.

Robyn Jacobson:
Then we also look at the wording in the legislation, ordinary family or commercial dealing of which there has been little to no guidance on the meaning of that term, and certainly no judicial guidance until very recently. And that itself in Guardian as the subject of a full federal court appeal. It's no wonder that practitioners looked at these situations and thought, well, what I'm doing, therefore doesn't fall within 100A because we can take some comfort from this safe harbor being the exemption for the ordinary dealing. So there's been quite a significant shift. The question is whether there's been a shift in the original policy intent from the late seventies to what the law is doing today, or whether there's been a shift in the way that practitioners understand the provision to work?

Jonathan Ortner:
I don't think that there's necessarily been a shift in the way that practitioners believe the provision to operate. I think the reality is no one knows how it operates, particularly in relation to the ordinary dealing exception, we are all including the Commissioner, we're all making it up as we go. And we're really waiting on the courts to provide some firmer authority on what some of these terms mean. So I think that if you look at it from a policy perspective and the time at which this provision was inserted back in the 70s, which was a time that was the bottom of the harbor schemes, the policy intent behind the provision is certainly in my opinion, different to the way the Commissioner is now administering the provision.

Robyn Jacobson:
It's hard to think of any other provision in the tax law that has been there for as many decades as this one that is so poorly understood. And we're all struggling to understand how it applies in practice. It shouldn't be this difficult.

Jonathan Ortner:
It shouldn't be, but that's, I guess, Australian tax law for you and it's probably not the only provision... Well, it's definitely not the only provision that's been around for a long time. That has a lack of clarity and uncertainty about it. A very simple one that comes to mind is 99B, that was also inserted at the same time as 100A and that is also a provision that has been drafted in a way that is incredibly broad, that applies to trust. But what kind of trust non residents or Australian trust is something that remains debated until today.

Robyn Jacobson:
So the case that remains before the courts at the moment, Guardian, can you briefly explain what was going on in that case and how helpful is this? Does it share any similarities with those previous cases you mentioned?

Jonathan Ortner:
I would say that it doesn't really share the similarities of the previous cases. It's a case that certainly introduced more commonly encountered family group dealings or concepts. I'll give you just the facts that follow us down a pattern to give the listeners some context. Guardian was the trustee of a discretionary trust, and it also owned all of the shares in the company, which was one of the beneficiaries of that trust. In three financial years, Guardian made the company presently entitled to a share of the trust income. Then in the following year, sufficient cash was paid by the trustee to the company to allow the company to pay tax on the net income. Then the balance of that entitlement remained unpaid, and having paid tax on the net income, the company could then declare a fully franked dividend to its shareholder being the trust. The trust would set off the dividend against the balance of the unpaid entitlement that was owing to the company. Then the trust would stream the franked dividend to Mr. Springer, who was a non-resident at the time, and so no further tax was paid.

Jonathan Ortner:
In essence, the income was sheltered at the corporate tax rate of 30%. It was this that the Commissioner took issue with. It is a fact pattern that is far removed from the types of egregious schemes that we might have previously become accustomed to where you've got low or no tax introduced beneficiaries, where you've got promoters of tax schemes, where you've got entities with significant tax losses. Here, we have pretty much a family group dealing with tax being paid still at a fair rate of 30%, but it coming within the ATOs view of 100A.

Robyn Jacobson:
It does display some features that were described in the ATOs July 2014 guidance, which has been described in the vernacular as the washing machine.

Jonathan Ortner:
Yes and no. I mean, it wasn't a strict washing machine in that it was going round and round and round. It was going to the company and then back to the trust and then out to a non-resident. So I guess, it was incorporating elements of it. It was also incorporating elements of other types of examples the commission doesn't like where distributions are going out to non-residents and no further taxes being paid, and it's capped at either withholding tax rate or because we've got a franked dividend, there is no withholding tax.

Robyn Jacobson:
Can you comment on lessons we can learn from Guardian, which as I say again, remains on appeal before the full federal court and could ultimately go to the high court that remains to be seen. But in terms of the credibility of the taxpayer and their advisor and the quality or otherwise of contemporaneous documentation?

Jonathan Ortner:
The case largely turned on the facts. But at the end of the day, the taxpayer won because of the strong contemporaneous evidence. And because Justice Logan was persuaded by the credibility of the witnesses and oral evidence provided, The contemporaneous documentation included emails and file notes, which corroborated the oral evidence provided. Justice Logan said, 'I thought each of these witnesses offered honest, candid, consistent evidence, which also sat well with this correspondence.' So it was not as though there was a significant amount of evidence. It was just that the evidence came together in a way that properly supported what was being said by each witness and made sense in the context of the overall affairs of the taxpayers group. So the key takeaway for me, is remembering the importance of the whole picture, an oral statement without nothing else will not be sufficient. That an oral statement that is affirmed by the surrounding events that unfolded and even basic documentation, such as emails, file notes and aid memoirs will be given significant weight.

Robyn Jacobson:
Really important to understand and learn from. So in terms of moving forward from here, there's been a lot of discussion around the retrospective application, whether this is fair, how broadly the ATO should apply the guidance to taxpayers and what should taxpayers do? Just before you answer that, it's worth noting that this guidance is currently available for consultation and those consultations close in a couple of days, time and The Tax Institute, like many others will be putting forward submissions with our views and our concerns, but in terms of the retrospectivity, this is probably the biggest issue that is concerning the profession.

Jonathan Ortner:
Yeah, it is absolutely. It's certainly what has received the most attention outside of arrangements that many thought were otherwise family or commercial dealings. Really several examples set out in the guidance material reflect what many believe to be taxpayer practice for the last 20 to 30 years. The examples provided are not necessarily egregious and the Commissioner has not previously as a matter of practice audited or queried those factual scenarios, including at the time, since the commissioner issued his website guidance and the 2014 financial year. Certainly I've seen in practice in various reviews or disputes an opportunity for the Commissioner to apply 100A when he didn't and this was post 14. So the change in attitude by the commissioner arguably represents a U-turn according to many advisors, and it's understandable. Then why many believe the approach being taken by the commissioner is unfair.

Jonathan Ortner:
The commissioner believes the white zone compliance approach in the PCG is sufficient. I disagree, the white zones blurred by its various exceptions and the 2014 website guidance was, and really remains confusing. And in my mind, it's not an appropriate date for a line to be drawn, particularly in relation to the non egregious examples in the draft guidance material. This view seems to be shared by the government and opposition who've also articulated their concern regarding the potential application of the draft guidance material on a retrospective basis. It's my view, which I previously expressed on the panel presentation that the guidance materials should operate on a prospective basis only, from the date that the draft materials were released, not from obviously when it's finalized, because we're now aware of the commissioner's views.

Robyn Jacobson:
It's also interesting to note the recent media release issued by the Assistant Treasurer, Michael Sukkar, who made the comment that the ATO would not be applying this retrospectively and that anyone who was relying on the July 2014 guidance, where that would give them a more favorable outcome than the ATOs draft guidance could continue to rely on that, but went further to say that they would be looking at this closely and after the election and I understand that both the government and the opposition have made this undertaking. It remains to be seen who forms government after the 21st of May, but both have committed to looking at the provision and if necessary making legislative change. Now with that said, and that's comforting to hear that. I think it's also important to acknowledge that generally there would be a preference or a leaning towards administrative approaches by the ATO, rather than trying to amend the law.

Jonathan Ortner:
I think an administrative approach might be an interim solution, but I don't think it's a permanent fix. I think legislative change is important here. The reason for that is when you... There's really not many, or if any reason, given for why 100A was thought to be a provision that should be subject to an unlimited amendment period. Perhaps at the time when amendments were made to section 170, which dealt with amendment periods, it was thought that the egregious paper schemes of that time were such that the commissioner needed an unlimited period to be able to actually uncover those sorts of arrangements much like that is the justification for fraud or evasion cases and why there's an unlimited amendment period. But when we break it down now, and we think about the way the Commissioner's trying to apply the provision in practice, and it's really to a set of fact patterns that arguably part 4A could also apply to, which is subject to a limited amendment of four years. I see no reason why from a legislative perspective, 100A should not be subject to the same four year period as other types of specific integrity provisions.

Jonathan Ortner:
Now, if an administrative approach is going to be applied, the Commissioner could take a similar approach to that, which he does involving trustees of discretionary trust that aren't issued with assessments, so that where there's evidence that there has been no fraud or evasion, the commissioner will limit his review of cases involving 100A to a four year period. And that seems to be a sensible approach to take until we have a legislative fix, if we ever get one.

Robyn Jacobson:
What should taxpayers do now? How can they prove their situation or substantiate their circumstances or decisions they've made? Particularly where if you're trying to show there is not a reimbursement agreement in place, how do you prove that something didn't exist?

Jonathan Ortner:
This might be a vapid comment, but I think taxpayers should think seriously about whether 100A might apply to the set of facts in motion first. Substantiation is not about creating evidence that leads to misdirection. It's about lending support, to refute arguments that the Commissioner might advance and prove the facts in issue. At the end of the day, it is the taxpayer that bears the owns of proof. So maintaining strong evidence is always essential, whatever the tax matter might be. Once it's established that 100A ought not to apply or it's reasonably arguable that it ought not to apply. Then the answer is to your question that is, it depends. It depends on what the relevant arrangement or lack of arrangement entails.

Jonathan Ortner:
In Guardian, the documentary evidence was simple, emails, file notes, aid memoirs, and actions taken by Mr. Springer, which supported his statements regarding the need for asset protection and simplifying his life, going into retirement, everything was consistent, and what was said was able to be corroborated.

Jonathan Ortner:
My suggestion would be to think about what it is that you're doing, ensure that what is said, or what is being done rather is defensible. And so in some instances, a reasonably arguable position paper might be obtained from a qualified tax professional. In other instances, it will be about proving how the arrangement in its totality sought to achieve primarily commercial or familiar [inaudible 00:33:15]. And in more simple cases, it might just be about retaining basic documentation, such as in Guardian's case. There's no one size fits all.

Robyn Jacobson:
There are two further issues that have come up that seem to have antagonized the profession. That is in the taxpayer alert where the Commissioner talks about referring agents to the Tax Practitioners Board, where they've been involved in promoting these arrangements to their clients. And secondly, potentially applying promoted penalties to such arrangements. What are your views on both of these?

Jonathan Ortner:
Personally would not worry about it. It's been blown out of proportion. The assistant Commissioner Justin Dearness came out and said that taxpayer alerts have, and I'll just read what he's actually said, 'Have a standard way of being presented. And they are meant to identify the full range of remedies that might be available for anyone operating the market.' So he said, don't take this general messaging as an indication that the ATO is out there looking for referrals. And the promoter penalty laws are not intended to obstruct tax advisors and intermediaries from giving particular advice to their clients. For what it's worth, and I said this again on the panel as well, I think the tax alert should be withdrawn. It could have probably been dealt within the PCG, and I really don't think advisors should be concerned about some of the statements in that alert, although I accept that those statements should not have been made in the first place.

Robyn Jacobson:
So Jonathan, as we pull this to a close we're waiting on the appeal in Guardian, there are potentially more court cases in the pipeline. We're waiting for the ATO to finalize their draft guidance materials, which may or may not happen before the Guardian matter is resolved. We're still waiting to see exactly what compliance activity the ATO will undertake. There's a bit of uncertainty here for practitioners. It makes it very challenging.

Jonathan Ortner:
It does. I suspect the full court... I think they sit again in may and then August. I think Guardian won't be heard again until later this year, so we may not really find out anything more until 2023 on this case. I do know that there are other arrangements that are currently before the court. Some of which reflect the examples in the draft guidance materials. So it will be a case of watch this space, because I think that there's a little more action to come and I don't really think that guidance materials will be finalized before the end of this financial year, given the election, the cases before the courts and the current market reaction. They'll need to seriously take into account. All submissions provided by relevant stakeholders. So we've got a bit of a way to go still, Robin.

Robyn Jacobson:
I would suggest the submissions are going to be very extensive.

Jonathan Ortner:
I'd say so.

Robyn Jacobson:
Jonathan, thank you so much for your time and your insights today.

Jonathan Ortner:
Thanks very much Robin, for having me.

Robyn Jacobson:
Thanks for listening to this episode of TaxVibe. I've been chatting with Jonathan Ortner of Arnold Bloch Leibler in Sydney. To keep up to date with TaxVibe, be sure to subscribe, rate and review wherever you listen to your podcasts. If you'd like to connect with us on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram, and Twitter. You can join the conversation on our member only community forum @community.tax institute.com.au. Not a member of The Tax Institute? Join a collective voice of 15,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. For more information, visit taxinstitute.com.au/membership. You can also contact us by emailing TaxVibe@tax institute.com.au. We look forward to you joining us next time.