Section 100A is an anti-avoidance rule that lets the ATO cancel a family trust distribution where the beneficiary’s entitlement is really part of a reimbursement agreement, meaning someone else gets the benefit and tax is reduced. If it applies, the trustee is taxed on that income at the top marginal rate of 47%, and there is no time limit on the ATO amending.
This guide is part of our complete guide to trusts in Australia.
If you run your business through a family trust, Section 100A is the single most important integrity rule to understand right now. Since the ATO finalised its guidance in December 2022, distributions that families treated as routine for years are being tested against a much sharper standard. I am Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA, and in our work with trust clients this is the area where good documentation and a clear commercial rationale separate a safe arrangement from an expensive one. This article explains what Section 100A catches, how the ATO’s risk zones work, and what to do about it.
What Section 100A is, and why the ATO cares now
Section 100A of the Income Tax Assessment Act 1936 is a long-standing anti-avoidance provision aimed at “reimbursement agreements”, where a beneficiary is made presently entitled to trust income but the real benefit of that income flows to someone else, usually someone on a lower tax rate. It sat quietly for decades. In December 2022 the ATO finalised Taxation Ruling TR 2022/4 and Practical Compliance Guideline PCG 2022/2, setting out its view of the law and how it will apply compliance resources (ATO, trust taxation reimbursement agreement). That guidance is why every trust distribution now needs to stand up to scrutiny.
What actually counts as a reimbursement agreement
Section 100A applies when four things are present: a beneficiary is made presently entitled to trust income; that entitlement arises out of an agreement; the agreement provides for a benefit to be given to someone other than that beneficiary; and a purpose of the agreement is that someone pays less tax. If all four are met and no exception applies, the distribution is a reimbursement agreement.
The classic pattern is an adult child on a low income being made entitled to trust income, but the cash never reaching them: it is paid to the parents, gifted back, lent back, or simply kept in the business. The child is taxed at a low rate on paper while the family enjoys the money. That mismatch between who is taxed and who benefits is exactly what Section 100A targets.
The consequence: trustee taxed at 47%, with no time limit
Where Section 100A applies, the beneficiary’s present entitlement is disregarded for tax purposes and the trustee is assessed on that share of the net income at the top marginal rate of 47%, including the Medicare levy (2025-26, per the ATO individual income tax rates). Worse, Section 100A carries no statutory time limit, so the ATO is not restricted to the usual two or four year amendment periods; it can look back many years. A distribution made in good faith years ago can still be reopened.
Not sure whether your trust distributions sit in the green zone or the red zone?
At Pinnacle, we review your trust’s distribution pattern, documentation and cash flows against the ATO’s Section 100A guidance, and put a defensible position in place before you distribute. Book a consultation with Mina to have your arrangements reviewed.
Book a ConsultationThe ATO risk zones: green versus red
PCG 2022/2 sorts arrangements into risk zones. A white zone covers arrangements entered into before 1 July 2014 that the ATO will not review. The green (low risk) zone covers common, straightforward arrangements the ATO will not dedicate compliance resources to, for example distributing to an adult beneficiary who actually receives and keeps the money, or retaining funds that are genuinely applied for that beneficiary. The red (high risk) zone flags arrangements that attract attention, such as circular distributions and gift-back or loan-back schemes designed mainly to lower tax.
Being in the green zone does not mean Section 100A cannot apply; it means the ATO is unlikely to review you. Being in the red zone does not automatically mean you have breached the law, but you should expect scrutiny and be ready to defend the arrangement. Knowing which zone each distribution falls into is the practical starting point.
Safe arrangements versus risky arrangements
The safest distributions are the simplest: the beneficiary is entitled to the income, actually receives it, and uses it as they choose. Distributions to a spouse or adult child who genuinely gets the money, and retention of profits in a corporate beneficiary (a bucket company) that keeps the funds, are typically low risk. The risky arrangements are the ones where the money loops back: the beneficiary’s entitlement is gifted or lent back to the parents or trust, the entitlement is never paid, or the cash follows a circular path so that the person taxed and the person benefiting are different.
In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is families distributing to adult children on paper while the funds are quietly kept in the business, with no loan agreement, no repayment, and no commercial reason. That is the pattern the ATO built Section 100A guidance around. Where a family trust needs to retain profits, a family trust and bucket company structure is usually a cleaner answer than an unpaid entitlement to an individual.
The “ordinary family or commercial dealing” exception
Section 100A does not apply to an agreement entered into in the course of ordinary family or commercial dealing. This is the exception most families rely on, but it is narrower than it sounds. A dealing is not “ordinary” just because it happens within a family; the ATO looks at whether the arrangement, viewed as a whole, is the kind of thing families genuinely do for real reasons, rather than a contrived series of steps whose main point is to shift tax. Good trust distribution minutes and a clear, contemporaneous commercial rationale are what make this exception available.
What business owners with family trusts should do now
Review how your trust has distributed over recent years and ask, for each beneficiary, whether they actually received and kept the benefit. Where entitlements were left unpaid, understand why and document a genuine reason or pay them. Put your distribution resolutions in place before 30 June each year, keep proper minutes, and make sure any loans or retained funds have real agreements behind them. Most importantly, plan distributions before the year ends, not in a scramble afterwards. Our guides to trust distribution strategies and family trust distributions set out how to do this well, and ongoing tax planning keeps it on track.
Frequently Asked Questions
What is Section 100A in simple terms?
Section 100A is an anti-avoidance rule for family trusts. It applies where a beneficiary is made entitled to trust income but the real benefit goes to someone else and the arrangement reduces tax. If it applies, the ATO disregards the distribution and taxes the trustee on that income at the top marginal rate of 47%.
Can the ATO go back years under Section 100A?
Yes. Section 100A has no statutory time limit, so the ATO is not restricted to the usual two or four year amendment periods and can review distributions made many years ago. This is why documentation and a genuine commercial rationale matter for every year, not just the current one. A past distribution can still be reopened.
Are distributions to adult children caught by Section 100A?
Not automatically. A distribution to an adult child is low risk if the child actually receives and keeps the money and uses it freely. It becomes risky when the entitlement is unpaid, gifted back, or lent back to the parents or trust so the child is taxed on paper while the family keeps the cash. The key is who really benefits.
What is the ordinary family dealing exception?
Section 100A does not apply to arrangements entered into in the course of ordinary family or commercial dealing. This exception is narrower than it sounds: a dealing is not ordinary just because it is within a family. The ATO looks at whether the arrangement is a genuine family dealing or a contrived set of steps whose main purpose is to reduce tax.
How do I keep my trust distributions safe from Section 100A?
Keep it simple and documented. Distribute to beneficiaries who actually receive and keep the benefit, prepare distribution minutes before 30 June, give any retained funds or loans real agreements, and record a genuine commercial reason. Where the trust needs to retain profits, a bucket company is usually cleaner than leaving an individual’s entitlement unpaid. Get the arrangement reviewed before you distribute.
General Advice Disclaimer: The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on anything in this article, consider its appropriateness to your circumstances and seek advice from a registered tax adviser or CPA. Liability limited by a scheme approved under Professional Standards Legislation.
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