Topic: BBlood decision casts doubt on 100A draft ruling

Last reviewed: 18/12/2025

Focus: Accounting Practice Analysis

BBlood and 100A: What Changes for Trusts (2025)

The BBlood decision materially undermines key assumptions underpinning the ATO’s draft guidance on section 100A by reinforcing that ordinary family and commercial dealings are not automatically “reimbursement agreements” merely because money moves differently to the trust distribution resolution. For Australian accounting practices, the practical effect is that the ATO’s expansive compliance approach in its section 100A draft ruling and companion guidance must be applied more cautiously, with a renewed focus on evidence of purpose, the real bargain (if any), and whether the arrangement is truly contrived rather than simply “circular” or “retained in trust”.

Featured Answer: The BBlood decision casts doubt on the breadth of the ATO’s draft section 100A position because it highlights that section 100A requires a real reimbursement agreement and a relevant tax-reduction purpose, not merely a mismatch between a trust distribution and where cash ends up. For accountants, this means section 100A risk should be assessed on facts and evidence of purpose, with stronger emphasis on contemporaneous documentation, commercial rationale, and beneficiary entitlement management—rather than assuming ATO “red zone” features automatically trigger 100A.

What is section 100A and why does it matter for Australian trusts?

Section 100A is an anti-avoidance provision that can treat a beneficiary as not presently entitled to trust income where that entitlement arises from a reimbursement agreement. The outcome is typically that the trustee may be assessed under section 99A (often at the top marginal rate), which is why section 100A has become a major risk area in trust tax compliance.

Adult beneficiaries are made presently entitled but do not actually receive cash.
Funds are “returned” to the trust, paid to someone else, loaned back, or applied for another party’s benefit.
The arrangement has features that could be characterised as contrived or tax-driven rather than ordinary dealing.

Income Tax Assessment Act 1936 (ITAA 1936), section 100A (reimbursement agreements)
ITAA 1936, sections 97, 99 and 99A (assessment pathways for trust income)

What is the ATO’s draft ruling position on section 100A?

The ATO draft ruling on section 100A (often cited in practice as the draft ruling on reimbursement agreements)
The ATO’s companion compliance guidance (PCG) focusing on risk zones (green/amber/red) for common trust distribution patterns

The beneficiary’s entitlement is more “on paper” than in substance.
The funds are applied in a way that benefits someone other than the beneficiary.
There is a pre-arrangement or understanding about how the entitlement will be dealt with.
The arrangement appears designed to obtain a tax advantage (for example, distributing to low-tax beneficiaries while funds are enjoyed by others).

It should be noted that ATO guidance is influential but does not override the statute and must yield to judicial interpretation of section 100A.

What did the BBlood decision actually decide?

BBlood is important because it refocuses attention on the statutory elements: there must be a reimbursement agreement and a relevant purpose, and the characterisation must turn on evidence and substance, not labels or generalised assumptions.

Circularity or cash not following the distribution is not, by itself, determinative.
The decision supports a tighter reading of what constitutes an “agreement” and whether the arrangement is properly described as a reimbursement agreement within the meaning of section 100A.
The analysis is intensely factual: what was agreed, by whom, when, and why.

For practitioners, the significance is that the ATO’s broader “risk feature” logic in the draft ruling can be challenged where the facts demonstrate ordinary dealing and no contrived bargain.

Why does BBlood cast doubt on the ATO’s section 100A draft ruling?

BBlood casts doubt on the draft ruling to the extent the draft ruling is applied as if it creates near-presumptions based on outcomes (for example, “beneficiary didn’t get cash, therefore 100A risk is high”) rather than proving the statutory elements.

Where the tension arises in practice

Ordinary family arrangements where beneficiaries leave funds in the trust for reinvestment.
Cashflow-managed groups where entities settle balances through journals and inter-entity accounts for operational reasons.
Beneficiary loan accounts that are genuinely tracked and later paid, offset, or applied.

The existence of a trust distribution resolution plus later financial dealings is not enough.
The ATO still must identify a reimbursement agreement and relevant purpose, consistent with section 100A and case law principles.

What remains unchanged despite BBlood?

A contrived arrangement where the beneficiary is a mere conduit.
A pre-arrangement that the entitlement will be effectively redirected for another’s benefit.
Artificial steps designed to secure a lower overall tax outcome without genuine beneficiary benefit.

How should accountants reassess 100A risk after BBlood (2025 approach)?

Accounting practices should reassess 100A risk by shifting the review from “pattern matching” to “element testing”.

Is there a reimbursement agreement?
Who benefits economically?
What is the purpose?
Is it ordinary family or commercial dealing?

What are real-world examples of where BBlood helps (and where it doesn’t)?

Example 1: Adult beneficiary leaves funds in trust to invest (lower risk with evidence)

A family trust distributes income to an adult child at year-end. The child does not withdraw cash immediately; instead, the amount is credited to a properly maintained beneficiary loan account. The trust later uses the funds to acquire ETFs as a long-term family investment strategy, and the beneficiary can call for payment.

Beneficiary loan account is real, reconciled, and not a fiction.
Beneficiary has the legal ability to demand payment (and this is not illusory).
Minutes and communications show an investment rationale, not a tax-driven “wash”.

Example 2: Distribution to a low-tax beneficiary, funds immediately pay parent’s private expenses (higher risk)

The trust distributes to an adult child, but the “entitlement” is rapidly applied to pay the parents’ private mortgage and school fees under a standing understanding.

Economic benefit is enjoyed by someone other than the beneficiary.
The arrangement looks pre-planned and tax-motivated.
The “present entitlement” may be a mere step in a reimbursement agreement.

Example 3: Working capital retention in a trading trust (potentially lower risk with commercial rationale)

A discretionary trust operating a business distributes profit to an adult beneficiary, but cash is retained in the trust to fund inventory and wages. The beneficiary is informed, balances are tracked, and partial payments occur during the following year.

There is genuine commercial need and contemporaneous support.
The beneficiary’s entitlement is not a façade.
There is no redirection for someone else’s private benefit.

What documentation should practices strengthen for 100A positions?

Good documentation is not a “cure”, but it is often decisive in audit defensibility because section 100A controversies are evidence-driven.

Trust distribution resolutions (timely, correctly executed, consistent with deed)
Beneficiary statements confirming awareness and acceptance of entitlements
Beneficiary loan account ledgers with:
Cashflow and commercial rationale notes, particularly where funds are retained
Related-party transaction support, including loan agreements where relevant
Avoidance of vague journal narratives—ensure transaction descriptions reflect reality

It should be noted that contemporaneous documentation is typically afforded greater weight than documents prepared only after ATO review commences.

How does this affect practice workflows for trust tax, BAS and year-end compliance?

BBlood increases the importance of turning trust compliance into a repeatable “evidence capture” workflow.

At tax planning time, identify intended beneficiaries and expected cashflow consequences.
Before 30 June, confirm trustee resolutions can be made validly and on time.
Immediately after year-end:
Classify the arrangement:
For higher-risk cases, consider seeking specialist tax counsel input before lodgment.

How does this intersect with other trust integrity rules (Division 7A, section 99A and Part IVA)?

Section 100A is frequently considered alongside other integrity provisions.

Section 99A: If section 100A applies, trustee assessment at section 99A rates may follow—often the primary financial exposure.
Division 7A: Where corporate beneficiaries or UPE strategies are used, Division 7A issues can arise depending on structures and funding flows (particularly where private companies are involved).
Part IVA: Even if section 100A does not apply, the ATO may consider Part IVA where arrangements are highly tax-driven.

According to ATO guidance on these regimes, contemporaneous evidence and genuine commercial rationale are consistently critical, and advisers should expect the ATO to test substance over form.

How Fedix can help (practical compliance execution)

Fedix helps Australian accounting practices operationalise defensible trust compliance by making reconciliation, working papers, and evidence capture faster and more consistent.

Reduce time spent on transaction review and coding using AI-powered automation (often 90% faster reconciliation in practice: 10–15 minutes vs 3–4 hours per client).
Maintain cleaner beneficiary loan account support through disciplined reconciliation workflows and audit-ready exports.
Centralise working papers and year-end schedules to reduce “spreadsheet sprawl” and improve review quality.

Next step: Learn more at home.fedix.ai and consider whether MyLedger’s automation can free capacity in your 2025 trust compliance season while improving section 100A audit defensibility.

Conclusion: What should Australian practices do now?

BBlood strengthens the argument that section 100A must be applied by proving the statutory elements, not by assuming outcomes equate to reimbursement agreements. For Australian accounting firms, the best response is not complacency, but better files: clearer beneficiary entitlement tracking, stronger commercial rationale notes, and more disciplined year-end workflows. Where arrangements resemble entitlement “wash” patterns, it is prudent to redesign before lodgment rather than litigate later.

Disclaimer: This information is general in nature and does not constitute legal or tax advice. Section 100A outcomes are highly fact-dependent, and legislation and ATO guidance may change. Specific advice should be obtained for particular client circumstances.

Frequently Asked Questions

Q: Does BBlood mean the ATO’s section 100A draft ruling is invalid?

No. BBlood does not invalidate ATO guidance, but it does indicate that some expansive applications of the draft section 100A approach may not align with the statutory test as interpreted by the courts. In practice, ATO materials remain relevant, but they must be applied consistently with section 100A and case law.

Q: Is section 100A only about whether cash was paid to the beneficiary?

No. Cash not being paid is a risk indicator, not the legal test. The legal questions are whether there is a reimbursement agreement and whether a relevant purpose exists, having regard to the facts and the statutory exclusions (including ordinary family or commercial dealing where applicable).

Q: What trust scenarios are most exposed to section 100A after BBlood?

High exposure remains where distributions are made to low-tax beneficiaries and the funds are redirected to others’ private benefit under an understanding or arrangement. Contrived circular flows, “washing” arrangements, and undocumented offsets are still key red flags.

Q: What records should we keep to defend a trust distribution where cash is retained?

You should keep timely trustee resolutions, beneficiary communication, properly maintained beneficiary loan accounts, and contemporaneous notes explaining commercial rationale for retention. Evidence that the beneficiary can call for payment and that the balance is treated as a real liability is often critical.

Q: Should we amend prior-year distributions because of BBlood and the ATO’s 100A focus?

Not automatically. A review is warranted where prior-year patterns match high-risk features and documentation is weak. Decisions about amendments, disclosures, or restructuring should be made case-by-case with appropriate advice, particularly where section 99A exposure is material.