Section 100A and trust distributions: the records that matter

Section 100A of the Income Tax Assessment Act 1936 is an integrity rule aimed at trust distributions where the beneficiary is made entitled to income but someone else gets the benefit of it. Where it applies, the beneficiary is treated as never having been presently entitled to that income. The trustee is then assessed on it instead, at the top marginal rate plus Medicare levy (currently 47 per cent).

The section applies where a beneficiary’s present entitlement arises out of a reimbursement agreement. That is an agreement, arrangement or understanding, formal or informal, under which a person other than the beneficiary is paid money, given property or otherwise benefits, and at least one party entered into it for the purpose of someone paying less income tax. The agreement has to exist at or before the time the entitlement arises. An agreement entered into in the course of ordinary family or commercial dealing is excluded.

The ATO set out its view in Taxation Ruling TR 2022/4 and its compliance approach in Practical Compliance Guideline PCG 2022/2, both issued in December 2022. The guideline sorts arrangements into risk zones. Arrangements in the white zone, broadly those entered into before 1 July 2014, will not attract new compliance activity unless they were already under review. Green zone arrangements are low risk. Blue zone arrangements are those the ATO considers do not fit either category. Red zone arrangements are those it is likely to investigate. The most commonly discussed example is a distribution to an adult child that is then paid to, or used by, the parents.

Two features make section 100A more significant than its age suggests. The first is time. Under section 170(10) of the 1936 Act, the Commissioner can amend an assessment at any time to give effect to section 100A, so the usual two and four year amendment periods do not protect earlier years. The ATO has said in PCG 2022/2 that it will not generally devote compliance resources to arrangements entered into before 1 July 2014 unless they were already under review, but the power itself is unlimited. The second is rate. Because the trustee is assessed instead of the beneficiary, the tax is at the top marginal rate regardless of the beneficiary’s own circumstances.

Because the question turns on what was agreed and what actually happened to the money, the paperwork is usually where these matters are won or lost. The distribution resolution should be made on time under the deed and should identify precisely who is entitled to what. The entitlement should be paid to the beneficiary or applied for their benefit, and that should be traceable. Where funds are lent back to the trust or to another family member, there should be a written loan agreement on commercial terms. Where a beneficiary gives money to a parent or another family member, the reason should be recorded at the time, because the ordinary family dealing exclusion depends on the facts.

The trust deed matters too. The income definition decides what the beneficiary is entitled to in the first place, and deeds drafted before the High Court’s 2010 decision in Bamford can produce entitlements that do not match what the trustee intended. A deed that does not clearly include a beneficiary within the class can leave the distribution open to challenge on trust law grounds before section 100A is even reached.

Following the High Court’s decision in Bendel in June 2026, the ATO has said it will withdraw TD 2022/11, which deals with Division 7A rather than section 100A, and review other advice. Section 100A itself is unaffected by that decision, and TR 2022/4 and PCG 2022/2 remain the ATO’s published position, but in its Bendel decision impact statement the ATO said it will review both and amend them as appropriate, so check for updates before relying on them. The ATO also flagged that section 100A may apply where a company beneficiary’s entitlement arises under a reimbursement agreement.

CoSec Partners prepares trust deeds and deed variations drafted and signed off by Key Legal, an independent external law firm, and template distribution resolutions as part of our corporate secretarial services. Whether section 100A applies to a particular distribution is a tax question for the client’s adviser, and we do not give that advice.