Section 100A Traps 2025: Accountant Alert Guide

Accountants must be alert to section 100A agreement traps because the ATO is actively applying s 100A of the Income Tax Assessment Act 1936 (ITAA 1936) to trust distributions where a beneficiary is made presently entitled on paper, but another person (often a parent, controller, or related entity) actually enjoys the economic benefit—commonly via reimbursement arrangements, “washing” through bank accounts, circular loans, or unpaid present entitlements (UPEs) that are never intended to be paid. In practice, the risk is severe: the arrangement can be treated as if the beneficiary was never entitled, potentially shifting tax to the trustee at the top marginal rate under s 99A, with interest and penalties, and creating professional liability exposure where the practitioner did not identify “agreement” indicators in working papers and client instructions.

What is section 100A and why is it suddenly front-of-mind for Australian practices?

Section 100A is an anti-avoidance rule that can apply when a beneficiary is made presently entitled to trust income, but that entitlement arises out of (or in connection with) an “agreement” under which someone else obtains a benefit. The ATO’s current view is set out in TR 2022/4, supported by compliance guidance in PCG 2022/2.

From an Australian accounting practice perspective, s 100A is front-of-mind because:

• The ATO has made trust compliance a sustained program focus, particularly for private groups and family trusts.
• The ATO now treats many “common” distribution patterns as higher risk where documentation and cash movements do not align with the purported beneficiary outcomes.
• The evidentiary threshold can be met by conduct and circumstances—not only written agreements—meaning accounting files, bank statements, journals, and emails can become critical evidence.

Key official references accountants should anchor to:

• Legislation: ITAA 1936, s 100A (reimbursement agreements), and s 99A (trustee assessment at top rate in many cases).
• ATO Ruling: TR 2022/4 (ATO’s interpretation of s 100A, including what constitutes an “agreement”, “benefit”, “reimbursement agreement”, and “ordinary family or commercial dealing”).
• ATO Practical Compliance Guideline: PCG 2022/2 (risk zones and ATO compliance approach to s 100A, including common scenarios).

What is an “agreement trap” under section 100A?

An “agreement trap” is the practical reality that s 100A can be triggered by arrangements that clients and advisers do not label as an agreement. Under TR 2022/4, the ATO’s approach is that an agreement can be:

• Formal or informal
• Written or oral
• Express or implied from conduct
• A plan, understanding, or course of action inferred from surrounding facts

This is why s 100A is so dangerous in real-world compliance work: the “agreement” can be reconstructed by the ATO from:

• Bank statement patterns (rapid pass-through, same-day transfers, circularity)
• Journal entries and year-end adjustments
• Trustee resolutions that do not match cash outcomes
• Emails, file notes, and instructions evidencing an intention that the beneficiary will not truly benefit

When does section 100A commonly apply in practice?

Section 100A commonly applies where there is a reimbursement arrangement and the distribution is not within the “ordinary family or commercial dealing” exclusion (as considered in TR 2022/4). The hallmark is misalignment between:

• Who is presently entitled on paper, and
• Who actually receives or enjoys the economic benefit

Common practical patterns that can trigger s 100A scrutiny include:

• Distributions to adult children or other low-rate beneficiaries, followed by:
• UPEs that are recorded but:
• Circular “loan back” patterns (trust distributes, beneficiary “loans” back, trust uses cash elsewhere), especially where:

Critically, accountants should note that a client’s statement that “we always do it this way” is not a defence. A pattern can be used to prove the existence of an implied agreement.

Why are UPEs and “washing” cashflows high-risk for accountants?

UPEs and cash “washing” are high-risk because they create a documentary footprint that the beneficiary entitlement was not intended to be enjoyed by that beneficiary.

Key risk indicators accountants should treat as red flags:

• The beneficiary is allocated income but does not receive cash, and there is no credible plan to pay it.
• The beneficiary receives cash briefly then returns it (or it is redirected) with no commercial rationale.
• The beneficiary lacks practical control (e.g., no access to bank account, no decision-making).
• The trust or controller uses the “beneficiary entitlement” as a funding source.
• Minutes/resolutions are generic and do not explain why the beneficiary benefits.

Under the ATO’s analysis in TR 2022/4, these facts may support an inference that the entitlement arose in connection with an agreement to provide a benefit to someone else.

What does “ordinary family or commercial dealing” really mean after TR 2022/4?

“Ordinary family or commercial dealing” is a statutory exclusion that, if satisfied, can prevent s 100A applying even where there is an agreement. However, the ATO’s position (TR 2022/4) is that this is not a broad “family trust safe harbour”.

In practical terms, accountants should treat the exclusion as requiring evidence that:

• The arrangement is consistent with ordinary familial dealing (genuinely benefiting the beneficiary in a typical way), or
• The arrangement is commercially explicable (arm’s length-like rationale), and
• The tax outcome is not the primary driver where the beneficiary’s benefit is illusory

Accountants should be cautious where the only “benefit” is tax reduction and the beneficiary’s entitlement is never meant to be paid or enjoyed.

How do 100A agreement traps arise in typical year-end trust workflows?

They arise because the accounting workflow often finalises tax outcomes before cashflow and entitlement administration is properly implemented.

Common workflow failure points:

• The distribution resolution is prepared based on “target taxable incomes”, with limited analysis of who will actually receive or control funds.
• UPEs are booked to beneficiaries without:
• Bank transactions after 30 June contradict the distribution narrative, and the file lacks an explanation.

From a professional risk perspective, the “trap” is that the accountant’s own workpapers (trial balance adjustments, beneficiary loan accounts, journals, management letters) can become evidence of a reimbursement arrangement if not carefully documented and aligned to real outcomes.

What are real-world scenarios where accountants get caught?

The following scenarios are representative of what triggers ATO questions under TR 2022/4 and PCG 2022/2. Each scenario turns on facts and should be assessed case-by-case.

Scenario 1: Adult child beneficiary with immediate “gift back”

Why this is a s 100A trap:

• The short time frame and direction of funds suggests the child was a conduit.
• If evidence shows an understanding that the funds would be returned, the ATO may infer an agreement and a benefit to the parents.

Better practice indicators:

• Evidence the child independently decided how to use the funds.
• Evidence the child benefited (e.g., genuine living costs, savings, education expenses) consistent with ordinary family dealing.
• Contemporaneous records explaining purpose and autonomy (not manufactured after audit).

Scenario 2: UPE recorded for years with no intention to pay

Why this is a s 100A trap:

• The beneficiary’s “benefit” is not real.
• The trust/controller effectively enjoys the economic benefit.
• The conduct supports an inference of an agreement that the entitlement would not be enjoyed by the beneficiary.

Scenario 3: Circular “loan back” with weak documentation

Why this is a s 100A trap:

• Circularity and lack of commercial terms can indicate the entitlement is a mechanism to fund others while accessing a preferred tax outcome.
• After-the-fact documentation is routinely challenged.

Scenario 4: Bucket company distributions used to pay someone else’s private costs

Why this is a s 100A trap:

• The ATO may argue the “benefit” is enjoyed by the controller/family, not the company.
• Depending on facts, Division 7A issues may also arise if company funds are used in a way that constitutes a deemed dividend risk (separate but compounding exposure).

What evidence should accountants keep to defend against s 100A?

The most effective defence is contemporaneous evidence that the beneficiary genuinely benefited and there was no reimbursement agreement, or that the arrangement falls within ordinary family/commercial dealing consistent with TR 2022/4.

High-value evidence includes:

• Trustee resolutions that clearly:
• Proof of payment or benefit delivery:
• Beneficiary communications:
• UPE administration records:
• File notes documenting:

Accountants should also ensure that working papers do not inadvertently describe an arrangement in a way that supports an ATO inference of reimbursement (for example, “distribute to adult children then return to parents”).

How should accountants perform a practical “100A risk review” each year?

A practical s 100A risk review should be embedded in the year-end trust distribution process, not treated as an afterthought.

A robust review process:

1. Confirm trust deed power and distribution mechanics (present entitlement must be validly created).
2. Identify intended beneficiaries and document:
3. Trace cashflows for at least the period around 30 June:
4. Review UPEs:
5. Test for “agreement indicators”:
6. Document the conclusion with reference to TR 2022/4 and PCG 2022/2 risk principles.

How does this affect practice risk, audit exposure, and adviser liability?

The risk is not only client tax. It is also practice risk.

Key practice consequences:

• Amended assessments and s 99A exposure: Trustee taxed at punitive rates where s 100A applies.
• Penalties and interest: Increased where the ATO forms a view of intentional structuring.
• Client dispute risk: Clients often blame advisers if “standard” distribution strategies are challenged.
• Professional standards risk: Inadequate file documentation and failure to warn can create exposure under professional and engagement standards.

It should be noted that s 100A reviews are highly fact-dependent. A defensible position requires strong contemporaneous evidence, not reconstructed narratives.

How do MyLedger and ATO-integrated workflows reduce 100A risk in trust compliance?

MyLedger is relevant here because section 100A disputes are frequently decided on evidence: transaction flows, timing, and whether the beneficiary truly benefited. An ATO-integrated, automation-led workflow materially improves the quality and traceability of compliance evidence.

From an Australian practice perspective, MyLedger (Fedix) supports risk reduction through:

• Automated bank reconciliation: MyLedger reconciles in 10–15 minutes per client versus 3–4 hours in manual workflows, enabling earlier detection of suspicious pass-through patterns (90% faster reconciliation).
• Transaction-level auditability: Clear categorisation and consistent working papers reduce ambiguity in how distributions and subsequent payments were actually treated.
• ATO integration accounting software benefits: MyLedger’s ATO portal integration (client details, statements, transactions, due dates) supports a more complete compliance picture when reviewing beneficiary positions and group obligations.
• Automated working papers: Reduces reliance on manual Excel working papers where evidence is often incomplete or inconsistent across years.

While s 100A is a legal/tax integrity provision rather than a “software problem”, it is established in ATO practice that better evidence and clearer transaction narratives significantly improve audit outcomes.

What should accountants tell clients to prevent 100A agreement traps?

Accountants should give clients clear, written guidance that a trust distribution must reflect real economic outcomes, not just minute entries.

Client directives that reduce s 100A risk:

• Do not “wash” distributions through beneficiary accounts unless the beneficiary genuinely controls and benefits from the funds.
• Do not assume UPEs are safe by default; if UPEs are used, ensure there is a credible plan to pay and that the beneficiary is informed.
• Avoid arrangements where the controller uses funds while a low-rate beneficiary is the paper recipient.
• Keep contemporaneous records explaining purpose, benefit, and control.

Next Steps: How Fedix can help

Fedix helps Australian accounting practices reduce s 100A exposure by improving the speed, consistency, and evidentiary quality of trust compliance work.

Practical next steps:

1. Use MyLedger to reconcile bank transactions rapidly (10–15 minutes per client) and identify pass-through or circular flows early.
2. Standardise trust compliance working papers and transaction coding so beneficiary outcomes match the cash reality.
3. Leverage ATO integration features to support stronger end-to-end compliance checking across the client group.

Learn more at home.fedix.ai and consider trialling MyLedger to streamline reconciliations and working papers while strengthening audit defensibility.

Frequently Asked Questions

Q: What is the main “agreement trap” under section 100A?

Q: Can section 100A apply even if there is no written agreement?

Q: Do unpaid present entitlements (UPEs) automatically trigger section 100A?

Q: What happens if the ATO applies section 100A?

Q: How can an accounting practice reduce 100A risk efficiently across many trust clients?

Disclaimer: This material is general information only and does not constitute legal or tax advice. Section 100A outcomes are highly fact-dependent, and ATO views and case law may evolve. Specific advice should be obtained for each client’s circumstances.