This month, the ATO finalised its draft ruling and guidelines on section 100A ITAA36 in TR 2022/4 and PCG 2022/2, and issued a draft ruling and guidelines on the classification of employees and contractors in TR 2022/D3 and PCG 2022/D5.
In the weeks leading up to Christmas, the ATO participated in the season of giving and both:
- finalised the Tax Ruling 2022/4 and Practical Compliance Guideline PCG 2022/2 on section 100A ITAA36 regarding trust stripping arrangements, and critically the exclusion for ordinary family or commercial dealings; and
- issued Draft Tax Ruling 2022/D3 and Draft Practical Compliance Guideline PCG 2022/D5 regarding the meaning of an employee (versus contractor) for pay-as-you-go withholding purposes.
We have included a brief highlight of the rulings and guidelines below, and we will break down this material further in the new year.
Section 100A: TR 2022/4 and PCG 2022/2
On 8 December 2022, the ATO issued its final ruling and guidelines on the application of section 100A ITAA36, which have been in draft since February 2022 and in development by the ATO for almost a decade before that.
Our initial impression of the draft ruling in particular was that the ATO had completely repurposed section 100A, and in doing so sought to significantly limit the exclusion for ordinary family or commercial dealings. Although this approach was not unexpected given the focus of ATO compliance activity in recent years on family groups and this exclusion, it was particularly surprising that the ATO issued the draft ruling in defiance of Justice Logan's judgment in Guardian.
See our summary of the decision in Guardian here, and the draft ruling issued in February here.
Final ATO ruling (and guidance)
Focusing on ordinary family or commercial dealings (at  to ), TR 2022/4 provides a more balanced summary of the law than the earlier draft.
Since the release of the draft rulings in February, the appeal before the Full Federal Court has been heard in Guardian and Justice Thawley handed down his judgment regarding section 100A in BBlood (see our summary of the decision in BBlood here).
Although objection may still be raised with respect to the totality of the ruling and position regarding ordinary family or commercial dealings (see further -), at the very least the final ruling takes into account the current law as stated in Guardian (at first instance) and BBlood instead of contradicting it.
While the ruling and guidelines have been finalised, there remains an element of fluidity with:
- the judgment of the Full Federal Court in Guardian likely to issue in early 2023; and
- the taxpayer's appeal of Justice Thawley's factual findings in BBlood, which is yet to be heard.
As Guardian and BBlood conclude before the Full Federal Court, we will provide an update on the law and any impact it may have on the ATO's ruling and guidelines.
If you or your clients are undertaking a restructure or intend to make distributions prior to the completion of the Guardian and BBlood appeals, a conservative approach would involve consideration of the final ATO material and perhaps the draft ruling (for the ATO's commentary cf. Guardian).
For more information on the law with respect to section 100A or the ATO's ruling and guidelines, contact our team here.
Meaning of employee: TR 2022/D3 and PCG 2022/D5
How you engage workers and classify them as employees or independent contractors has important implications and obligations from both a tax and employment perspective.
Updates to ATO rulings and guidance
The ATO made the first round of key updates following the two landmark High Court decisions earlier in 2022 on whether an employee-employer relationship exists (Personnel Contracting and Jamsek) by:
- withdrawing TR 2005/16 with effect from 15 December 2022;
- replacing it with Draft Taxation Ruling TR 2022/D3, which explains the meaning of 'employee' for PAYG withholding purposes; and
- issuing a companion product, Draft Practical Compliance Guideline PCG 2022/D5, setting out its proposed compliance approach and a risk framework for classification arrangements.
See our earlier analysis of the Personnel Contracting andJamsek decisions here.
The ATO has foreshadowed further changes to other rulings and guidance, including superannuation guarantee rulings. Importantly, businesses should be cognisant of these upcoming changes and any impact they have on the expanded definition of employee for superannuation purposes.
Keep an eye out for our next update early in 2023, once the remaining changes are published and to learn more about the impact of this on your business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.