Section 100A and More – Trusts Under the ATO’s Microscope

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Section 100A and More – Trusts Under the ATO’s Microscope

Section 100A and More – Trusts Under the ATO’s Microscope – What You Need to Know

In recent years, the Australian Taxation Office (ATO) has significantly intensified its focus on family trusts, particularly in the wake of reforms and clarified guidance around section 100A reimbursement agreements. With more stringent compliance expectations, sharper audit activity, and high-stakes consequences for missteps, trustees can no longer afford a “set and forget” approach to trust distributions. We covered this in detail in an article in 2022 (click here for that one), but it’s a topic worth revisiting.

Here, we’ll unpack the latest developments, outline the risks, and provide practical steps to safeguard your trust distribution strategy through the remainder of 2025 and beyond.

What’s Changed + Why It Matters

In late 2024 and early 2025, the ATO announced an enhanced compliance focus on trust distributions, especially where the beneficiary does not actually receive or enjoy the distribution – for example, unpaid present entitlements (UPEs) used for other purposes.

Key policy updates include:

Finalised guidance via TR 2022/4 and PCG 2022/2, clarifying when section 100A applies, and defining “low-risk” vs “high-risk” arrangements.
Assurance that ordinary family arrangements – where beneficiaries genuinely benefit – remain low risk. No retrospective application for arrangements between 1 July 2014 and 30 June 2022.

Why it matters: if section 100A applies, the trustee – not the beneficiary – is taxed at the top marginal rate (currently 45%). This makes precise documentation, adherence to your trust deed, and a clear commercial rationale more critical than ever.

The Bendel Case

In Commissioner of Taxation v Bendel [2025] FCAFC 15 (the Bendel case), a discretionary trust made a corporate beneficiary presently entitled to trust income for a few years which remained unpaid. The Commissioner issued amended assessments on the basis that the UPEs were deemed to be dividends under Division 7A. The taxpayer unsuccessfully objected to the amended assessments and then proceeded to the Administrative Appeals Tribunal (the Tribunal). The Tribunal concluded that the UPEs were not loans under section109D(3) and the ATO appealed the tribunal’s decision to the Full Federal Court which unanimously dismissed the appeal in February 2025.

The ATO’s special leave application to the High Court in respect of the Full Federal Court’s decision was granted on 12 June 2025. Taxpayers need to be mindful that the ATO maintain their current view relating to private company entitlements to trust income and increasingly seek to apply section 100A to arrangements involving trust distributions to lower taxed corporate beneficiaries.

Understanding Section 100A + Reimbursement Agreements

Section 100A is an anti-avoidance provision aimed at arrangements where a beneficiary is made presently entitled to trust income but doesn’t actually receive or benefit from it, often to reduce tax.

Four core elements must be present for section 100A to apply:

Connection Requirement – entitlement arises from or in connection with an agreement or arrangement.
Benefit to Another – someone other than the beneficiary benefits.
Tax Reduction Purpose – at least one party intends to reduce tax.
Ordinary Dealing Exception – doesn’t apply if the arrangement was entered into in the course of ordinary family or commercial dealing.

The ATO uses PCG 2022/2 to classify arrangements into:

White Zone – pre-2014, very low risk.
Green Zone – low risk; e.g. genuine family distributions.
Red Zones – high risk; often complex, contrived, tax-driven.

Streaming Capital Gains + Franked Distributions

Trustees can “stream” capital gains or franked dividends to specific beneficiaries – but only if the trust deed permits it and tax rules are followed.

Points to consider:

Streaming decisions must be valid under the deed – implied powers aren’t enough.
Match distributions with beneficiaries who can utilise franking credits or capital gains concessions effectively.
Poorly documented or incorrectly executed streaming can trigger unintended tax liabilities or ATO review.
The operation of section 100A will result in no beneficiary being specifically entitled to that capital gain or franked distribution.

Common Pitfalls + ATO Red Flags

Our review of recent ATO commentary and case activity highlights several high-risk areas:

Outdated trust deeds – may not authorise certain distributions.
Late or invalid resolutions – missing the 30 June deadline can see the trustee taxed at 45%.
Allocating income to minors – exceeding the low threshold attracts punitive rates.
Unjustified UPEs – particularly where funds remain in the trust without a clear, documented purpose or commercial rationale.

Practical Steps for Trustees & Advisers

Review and Update the Trust Deed
Ensure it allows for discretionary distributions, streaming, and aligns with current tax law.
Formalise Trustee Resolutions
Prepare and sign distribution resolutions before 30 June each year.
Maintain Comprehensive Records
Keep minutes, evidence of benefits received by beneficiaries, and explanations for distribution decisions.
Apply ATO Guidance Strategically
- Use TR 2022/4 to understand rules and exceptions.
- Use PCG 2022/2 to assess risk zones.
Seek Private Rulings for Complex Cases
This applies in limited circumstances, however an ATO private ruling can provide clarity and reduce risk.

Key Takeaways + Looking Ahead

The ATO’s sharper focus on trust compliance means that trust distribution strategies must now withstand greater scrutiny. While ordinary family dealings remain low risk, the line between compliance and avoidance can be fine.

To protect your position:

Keep your deed current.
Make valid, timely resolutions.
Record everything.
Seek advice before entering into any arrangement that might raise questions.

McKinley Plowman’s Tax Consulting team can help you assess your trust arrangements, implement compliant, tax-effective strategies, to assist in reducing the risk of section 100A assessment. Call us on (08) 9301 2200 or visit our Contact page to arrange a review.

Laura Wang

Laura has worked in the accounting and tax industry since 2004, bringing with her a wealth of experience across compliance, business advisory, and tax consulting services. She holds two Masters degrees – one in Accounting and another in Applied Taxation – and is a Chartered Accountant (CA) and Chartered Tax Adviser (CTA).

Over her career, Laura has developed strong expertise in income tax, capital gains tax (CGT), small business concessions, indirect tax (including GST, payroll tax and stamp duty), employment tax (FBT, PAYG withholding and superannuation guarantee), and tax residency. She has also gained valuable experience in SMSF legislation. Laura particularly enjoys tax research and thrives on resolving complex tax issues for clients, while also helping them put effective tax planning strategies in place.

Outside of work, Laura enjoys listening to both classical and pop music, keeping fit, spending time with friends and family, cooking, reading biographies, and travelling.

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