Section 100A is an anti-avoidance rule in the Income Tax Assessment Act 1936 that lets the ATO tax a trustee at the top marginal rate when a beneficiary’s trust entitlement is tied to an agreement that hands the benefit to someone else and was entered into to reduce tax.
The classic problem case is a family trust that distributes income to an adult child on paper, while the parents keep and spend the money. The trust resolution says one thing and the bank account says another.
There is no time limit on the ATO applying the rule to past years, and the ATO’s main guidance is under review after the High Court’s Bendel decision in June 2026. Below we explain how the test works, what the ATO’s risk zones mean, and what it costs when it applies, using a worked example.
Key takeaways
- Section 100A can apply where a beneficiary’s present entitlement arises from a reimbursement agreement: someone other than the beneficiary gets the benefit, and at least one party had a purpose of reducing tax.
- Agreements entered into in the course of ordinary family or commercial dealing are excluded, and so are beneficiaries under a legal disability, such as children under 18.
- If it applies, the beneficiary is treated as never having been entitled and the trustee is taxed at the top marginal rate (45% for 2025-26).
- There is no time limit on the ATO amending an assessment to apply section 100A.
- The ATO’s ruling TR 2022/4 and its risk-zone guideline PCG 2022/2 are both under review after Bendel [2026] HCA 18.
Section 100A at a glance
| Item | The rule | Where it comes from |
|---|---|---|
| Where it sits | Section 100A, Division 6 of Part III, Income Tax Assessment Act 1936 | Legislation |
| Effect | Beneficiary is deemed never to have been presently entitled to the relevant trust income | s100A(1) |
| Who pays | The trustee, at the top marginal rate | PCG 2022/2, TR 2022/4 |
| Benefit to someone else | Payment of money (including a loan), transfer of property, services or other benefits. Releasing, not demanding or postponing a debt counts as a payment | s100A(7), (10), (12) |
| Tax purpose | Any party enters the agreement for purposes that include someone paying less income tax | s100A(8), (9) |
| Exclusions | Ordinary family or commercial dealing. Beneficiaries under a legal disability | s100A(1), (13) |
| Time limit | None. The ATO can amend at any time | s170(10), item 17 |
| ATO guidance | TR 2022/4 (amended September 2023) and PCG 2022/2. Both under review after Bendel | ATO legal database |
What does section 100A actually do?
Normally a beneficiary who is presently entitled to trust income pays tax on their share. Section 100A switches that off. Where the entitlement arose out of, or in connection with, a reimbursement agreement, the beneficiary is treated as never having been entitled to that income, and the trustee is assessed on it instead under section 99A.
That is why a valid trust resolution is not enough on its own. A distribution can be properly minuted and still be caught if the adult child never sees the funds and the parents use them for the mortgage, school fees or business costs. You can read the provision itself in section 100A of the Income Tax Assessment Act 1936 on the ATO legal database.
What is a reimbursement agreement?
The ATO’s guidance on trust reimbursement agreements breaks the test into parts. In plain terms, three things must line up:
- A connected agreement. The entitlement arose out of, or in connection with, an agreement, arrangement or understanding. It can be informal, unwritten and not legally enforceable, and the beneficiary does not have to know about it.
- A benefit to someone else. The agreement provides for money, property, services or other benefits to go to a person other than the beneficiary. A loan counts, and so does releasing, not demanding or postponing payment of a debt.
- A tax reduction purpose. At least one party entered the agreement for purposes that included someone paying less income tax. It does not have to be the only or main purpose.
If all three are present and no exclusion applies, section 100A applies to that part of the entitlement. The comparison is often stark: income that would have been taxed at a young adult’s low marginal rate is instead taxed at 45% in the trustee’s hands.
What counts as ordinary family or commercial dealing?
The biggest exclusion is for agreements entered into in the course of ordinary family or commercial dealing. In TR 2022/4, the ATO’s view is that a dealing is ordinary when it is explained by the family or commercial objectives it achieves. If the objective is better explained as paying less tax to maximise group wealth, it is not ordinary.
The ATO lists features that point away from ordinary dealing, including arrangements that are artificial, contrived or overly complex, beneficiaries who are not told about their entitlements, and entitlements paid to a beneficiary who then agrees to pass them on to someone else.
Watch out
The legal disability exclusion protects only the beneficiary who is under the disability, such as a child under 18. It does not protect a distribution to that same child once they turn 18, and the ATO treats paying an adult child’s entitlement to parents for costs incurred before the child turned 18 as a red-zone arrangement.
How do the ATO’s white, green and red zones work?
PCG 2022/2 is the ATO’s compliance guideline. It does not change the law. It tells trustees how much attention an arrangement is likely to get, using three zones:
- White zone (low risk): arrangements entered into in income years that ended before 1 July 2014. The ATO will not start new section 100A reviews of these years unless it is already looking at your tax affairs for those years or the arrangement continued past that date.
- Green zone (low risk): for example, an individual’s entitlement paid to them and used for themselves, their spouse or dependants, for personal super contributions or for a gift to a deductible gift recipient. Also an entitlement received within 2 years and used by the beneficiary, some trustee retention of funds for working capital in a family group, and arrangements matching the ordinary dealing examples in TR 2022/4.
- Red zone (high risk): for example, an adult child’s entitlement paid to a parent for expenses incurred before the child turned 18, a non-resident relative lending or gifting the funds to a resident, circular dividend arrangements through a private company beneficiary, units issued and set off against the entitlement, and loss beneficiaries outside the family group.
Arrangements outside the zones are not automatically high risk. For entitlements arising before 1 July 2022, the ATO stands by its 2014 web guidance where that is more favourable to you.
Tip
One of the simplest green-zone patterns is a beneficiary who receives their entitlement within 2 years of becoming presently entitled and uses it themselves. Pay the entitlement into the beneficiary’s own account and keep the records that show they decided how it was spent.
What does the Bendel decision change?
Commissioner of Taxation v Bendel [2026] HCA 18 was decided on 10 June 2026. It is a Division 7A case, not a section 100A case. The High Court held that a private company beneficiary that simply leaves its trust entitlement unpaid, and does nothing more, has not made a loan to the trust for the purposes of section 109D.
In its decision impact statement published on 26 June 2026, the ATO said it will withdraw TD 2022/11 and review other guidance, including TR 2022/4 and PCG 2022/2. It also said a company’s inaction on an unpaid entitlement may not avoid Subdivision EA or section 100A. Our Bendel case explainer covers the Division 7A side in more detail.
- What changed: an unpaid present entitlement left untouched by a corporate beneficiary is no longer treated as a Division 7A loan.
- What did not change: section 100A still applies to reimbursement agreements, and Subdivision EA can still apply if the trust later pays, lends to or forgives a debt of a shareholder or associate of the company.
- What to do: test each entitlement separately under Division 7A, Subdivision EA and section 100A. Our Division 7A private company loans guide explains the loan rules.
Worked example: what does section 100A cost when it applies?
The facts
A discretionary family trust resolves on 30 June 2026 to distribute $80,000 of its 2025-26 income to the parents’ adult son, aged 24. His only other income is $25,000 from a part-time job. The $80,000 stays in the trust account and the parents use it for their mortgage and a younger child’s school fees. The son is not told the amount and does not direct any of the payments.
These facts look like a reimbursement agreement: the entitlement was connected to an understanding, the parents got the benefit, and lower tax was part of the purpose. The figures below use the 2025-26 resident tax rates and exclude the Medicare levy and tax offsets.
Option 1: the distribution is taxed to the son
- Son’s taxable income: $25,000 + $80,000 = $105,000
- Tax on $105,000: $4,288 + 30% × ($105,000 − $45,000) = $4,288 + $18,000 = $22,288
- Tax on his $25,000 wage alone: 16% × ($25,000 − $18,200) = 16% × $6,800 = $1,088
- Extra tax caused by the distribution: $22,288 − $1,088 = $21,200
Option 2: section 100A applies
- The son is treated as never entitled to the $80,000, so his tax goes back to $1,088
- The trustee is assessed on the $80,000 at the top marginal rate: 45% × $80,000 = $36,000
- Extra tax compared with Option 1: $36,000 − $21,200 = $14,800
On these numbers, section 100A adds $14,800 of tax for one year, before any shortfall interest or penalties. Because there is no time limit on amendments, several years could be reopened at once.
What would change the result
If the $80,000 is paid into the son’s own account, he decides how to use it and he keeps or spends it for himself, the arrangement moves towards the green zone. If he then chooses to pay board at a real amount, that is his decision with his own money. The resolution and the bank trail tell the same story.
How can trustees reduce section 100A risk before 30 June?
Do the work before the resolution is signed. A short file note made in June is worth far more than an explanation written years later, and the ATO’s guideline specifically asks for contemporaneous records.
- Record the reason: note why each beneficiary was chosen, such as family support, work in the business or capital needs.
- Tell the beneficiary: let each beneficiary know their entitlement before the trust’s tax return is due or lodged.
- Match the bank trail: make sure payments after 30 June follow the resolution, or record why funds are retained and on what terms.
- Show beneficiary control: keep evidence that the beneficiary could decide how their entitlement was used.
- Check the deed: confirm the trustee’s powers and income definition. Our guide to trust deed amendments explains when a deed needs updating, and our family trust election guide covers the family group rules the green zone relies on.
- Review corporate beneficiaries separately: a bucket company does not automatically avoid section 100A. Our comparison of a discretionary trust vs a company is a useful starting point.
- Stop side deals: do not sign a resolution if there is an unwritten plan for the money to go straight back to the parents.
If you are new to how distributions work, start with our overview of family trusts in Australia.
What if past distributions look like the red zone?
Do not ignore it and do not rewrite history. Map each year’s distributions against bank statements, beneficiary accounts and actual spending, then sort the years into low risk, unclear and high risk. Options can include a voluntary disclosure, a private ruling request for a proposed arrangement, or a prepared response if the ATO has already started a review. If you have received an audit letter or position paper, our ATO dispute resolution service can help.
Section 100A FAQs
What is section 100A in simple terms?
Section 100A is an anti-avoidance rule in the Income Tax Assessment Act 1936. If a beneficiary is made entitled to trust income under an agreement that gives the benefit to someone else and was entered into to reduce tax, the beneficiary is treated as never entitled and the trustee is taxed on that income at the top marginal rate.
Does section 100A apply to distributions to children under 18?
No. Section 100A does not apply to a beneficiary who is under a legal disability, which includes children under 18. Distributions to minors have their own special tax rates. The risk usually arises once a child turns 18.
Who pays the tax if section 100A applies?
The trustee. The beneficiary is deemed never to have been presently entitled to the relevant income, and the trustee is assessed under section 99A at the top marginal rate, which is 45% for 2025-26.
How far back can the ATO apply section 100A?
There is no time limit. Section 170(10) of the Income Tax Assessment Act 1936 allows the ATO to amend an assessment at any time to give effect to section 100A. Under PCG 2022/2, the ATO generally will not start new reviews of income years that ended before 1 July 2014.
Did the Bendel High Court decision change section 100A?
No. Bendel is a Division 7A case about unpaid present entitlements owed to a private company. The ATO has said section 100A may still apply to those entitlements, and it is reviewing TR 2022/4 and PCG 2022/2 as a result of the decision.
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Talk to a registered tax agent
If your trust is about to make distributions, or past years look like they could fall in the red zone, speak with a registered tax agent at Nanak Accountants & Associates on 1300 626 258. You can also contact our team to book a review, or see our trust accounting service and tax planning advice.
This article is general information only and is not personal financial or tax advice. Information checked against ATO, ATO legal database and Income Tax Assessment Act 1936 sources on 20 October 2026.
