Do you need to comply?

Yes, under the Income Tax Assessment Act 1936 (Cth).

Conditions of compliance

A trustee of a family trust is liable to be assessed under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) where trust income is distributed to a tax exempt beneficiary of the family trust, pursuant to a reimbursement agreement as defined in section 100A of the ITAA 1936.

If you have to comply, what do you have to do?

If a trust, including a family trust, makes a distribution to a tax exempt entity, such as a school, the trustee may be taxable on the amount. This would be the case if the distribution from the trust was part of an agreement such as the school providing some service to the trust (for example, if the school accepted a distribution from the trust in lieu of school fees being paid). These agreements are called reimbursement agreements in the tax legislation.

The Australian Taxation Office has advised that family trust arrangements set up to make payments to schools in lieu of school fees are against the operation of the ITAA 1936.

Similarly, if a person makes a donation to a school that is also a deductible gift recipient, the donation is only tax deductible if the donation is a gift for which the donor does not obtain a material benefit. A donation, in lieu of school fees, would not be a gift and would not be tax deductible to the donor.

What are the consequences if you don’t comply?

The school, its parents or the trustees of a family trust may be in breach of the Income Tax Assessment Act 1936 (Cth).

ISV contacts

Peter Roberts
Director, School Services
Ph. 03 9825 7211

Kieren Noonan
Head of Innovation
Ph. 03 9825 7275

Links, resources and downloads

Australian Taxation Office: ATO Interpretative Decision 2005/145