Section 100A: when trust distributions come undone

The risk conversation about trust distributions has moved. It is no longer only about whether an unpaid present entitlement triggers Division 7A. Even where Division 7A does not apply, section 100A can still be in play — and it operates on a different timetable, with a different remedy.

What does section 100A do?

Where a beneficiary’s present entitlement arose out of a reimbursement agreement, section 100A treats the beneficiary as never having been presently entitled. The trustee is then assessed under section 99A at the top marginal rate.

The starting point is the ordinary rule: beneficiaries are assessed on trust income to which they are presently entitled (section 97, Income Tax Assessment Act 1936). Section 100A is the integrity override. It applies where:

1. a beneficiary is presently entitled to trust income (s 100A(1)(a));
2. that entitlement arose out of a reimbursement agreement (s 100A(1)(b), defined in s 100A(7));
3. the agreement involves a benefit flowing to someone other than the entitled beneficiary (s 100A(7)); and
4. a party to the agreement had a purpose of reducing someone’s income tax (s 100A(8)).

“Agreement” is defined very broadly (s 100A(13)) — formal or informal, express or implied, enforceable or not.

The only real safe harbour

An agreement entered into in the course of ordinary family or commercial dealing is excluded.

That exclusion carries the entire weight of the provision, and it is not a label you can apply after the fact. It asks whether the dealing, viewed as a whole, is explicable as an ordinary family or commercial dealing. A bare trustee resolution with no reasoning behind it is unlikely to do the work.

What the courts have decided

Guardian AIT [2023] FCAFC 3. The agreement has to exist, and to have been adopted, before the present entitlement arises. Consensus and timing both matter. An arrangement assembled after the event does not satisfy the test.

BBlood (B&F Investments) [2023] FCAFC 89. The fact that each step in an arrangement looks unremarkable on its own is not a defence. The Full Court examined the arrangement as a whole. Where income was distributed to a low-rate beneficiary but the economic benefit flowed elsewhere, the ordinary family or commercial dealing exclusion did not apply. It is also the cautionary tale on deliberately engineering a gap between trust income and taxable income.

Bendel. A Division 7A win is not an integrity win. Even where an unpaid present entitlement is not a loan for Division 7A purposes, section 100A scrutiny still turns on whether the cash follows the entitlement. Clearing one hurdle does not clear the other.

There is no standard amendment period

This is the feature that most often surprises people. The usual amendment period limits do not apply in the same way where section 100A is in issue. A distribution made years ago can be revisited in circumstances where an ordinary amendment would be out of time.

Three mistakes that cost clients

Assuming a Division 7A clearance means the distribution is safe. Section 100A sits behind every unpaid present entitlement and every on-paper distribution. Addressing Division 7A without considering section 100A leaves the larger risk unmanaged.

Relying on the ordinary family dealing exclusion without evidence. The exclusion requires the arrangement to be explicable as an ordinary dealing. That is a factual question, and the material to answer it has to exist.

Not tracking where the money actually goes. Economic substance matters as much as paperwork. If the beneficiary never receives or controls the funds, the form of the distribution will not save it.

What to do before 30 June

1. Look at where the cash goes, not just at the resolution. If the entitled beneficiary does not receive it, be able to explain why in ordinary family or commercial terms.
2. Document the reason at the time. Contemporaneous file notes explaining the commercial or family rationale are worth far more than a reconstruction later.
3. Check adult children distributions in particular. Distributions to adult beneficiaries whose entitlements are applied for the benefit of the parents are the paradigm case the ATO looks for.
4. Review historical years. Because the amendment period does not operate normally, prior-year arrangements are still live.
5. Deal with it before the resolution, not after the return. Section 100A is decided on what the arrangement actually was, and the arrangement is settled by 30 June.

References

• Income Tax Assessment Act 1936 (Cth), ss 97, 99A, 100A
• Guardian AIT Pty Ltd ATF Australian Investment Trust v FCT [2023] FCAFC 3
• B&F Investments Pty Ltd as trustee for the Illuka Park Trust v FCT (BBlood) [2023] FCAFC 89
• Commissioner of Taxation v Bendel [2026] HCA 18

This article is general information only. It is current as at 21 May 2026 and the law may have changed since. It is not legal or tax advice, does not take account of your circumstances, and must not be relied upon as a substitute for advice on your own matter.

Trusts & Private Groups