09/12/2025 • 19 min read
Section 100A 2025: Why the ATO “Zoned Out” Trusts
Section 100A 2025: Why the ATO “Zoned Out” Trusts
Section 100A has “zoned out” many Australian trust distribution strategies because the ATO now treats a wide range of adult-beneficiary and corporate-beneficiary arrangements as high-risk “reimbursement agreements” unless the cash (or benefit) genuinely flows to, and is enjoyed by, the presently entitled beneficiary. In practical terms, the ATO’s current compliance stance is that paperwork-only distributions—where another person ultimately uses the money—can trigger section 100A, resulting in the trustee being assessed at the top marginal rate on the relevant trust income.
What does “With 100A, the ATO has zoned us out” actually mean?
It means the ATO has materially narrowed what is practically defensible for trust distribution planning, particularly where adult children, grandparents, or other beneficiaries are “distributed to” but the funds are retained by the trust, paid to parents, applied against parents’ expenses, or otherwise redirected.
From an Australian accounting practice perspective, “zoned out” usually refers to these outcomes:
- Long-standing “bucket company plus unpaid present entitlement (UPE)” or “adult child beneficiary but parents use funds” models being reviewed under section 100A risk settings.
- Increased ATO review activity and information requests focused on “who actually benefited”.
- A shift from “minutes + resolution” to “cashflow and evidence” being decisive.
What is Section 100A and when does it apply?
Section 100A of the Income Tax Assessment Act 1936 (ITAA 1936) can apply where a beneficiary is made presently entitled to trust income, but that entitlement arises as part of a “reimbursement agreement”.
In broad terms, the provision is directed at arrangements where:
- A beneficiary is appointed income for tax purposes, and
- Someone else (commonly the trustee, another beneficiary, or an associate) effectively gets the benefit of that income, and
- The arrangement is not an “ordinary family or commercial dealing”.
Where section 100A applies, the consequence is severe:
- The beneficiary can be treated as not being presently entitled for tax purposes, and
- The trustee is assessed on that share of net income at the top marginal rate (plus Medicare levy where relevant).
It should be noted that the ATO’s current approach is set out in its public guidance on section 100A, including:
- TR 2022/4 (Income tax: section 100A reimbursement agreements)
- PCG 2022/2 (section 100A risk framework and ATO compliance approach)
These are the core documents shaping current ATO behaviour in reviews and audits.
Why is the ATO focusing on Section 100A now?
The ATO is focusing on section 100A because it considers trust distributions a recurring integrity risk where taxable income is allocated to low-rate beneficiaries but the economic benefit is enjoyed elsewhere.
Key drivers that have increased section 100A pressure include:
- Data matching and improved visibility of trust structures, beneficiaries, and group cash movements.
- Consistent ATO concern about “washing machine” distributions (income appointed to Person A, funds used by Person B).
- ATO compliance programs targeting private groups, trusts, and Division 7A interactions (where relevant).
As of December 2025, the practical reality in many firms is that section 100A review is now a standard part of year-end trust sign-off, rather than an exceptional issue.
How does the ATO define a “reimbursement agreement”?
A “reimbursement agreement” is broadly an agreement, arrangement, or understanding where someone is “reimbursed” (or receives a benefit) in connection with a beneficiary’s entitlement.
In practice, the ATO is looking for “substance” indicators such as:
- The beneficiary did not receive the distribution (cash or benefit).
- The distribution amount is applied to expenses of someone else (often parents).
- The entitlement is set up to stream taxable income to a low-rate person with no real expectation they will benefit.
- There is circularity or pre-planning that indicates the beneficiary is a conduit.
The legislation is not new, but what has changed is enforcement intensity and the ATO’s published view of what fact patterns are likely to be caught (TR 2022/4) and how it will allocate compliance resources (PCG 2022/2).
What is an “ordinary family or commercial dealing” and why does it matter?
The “ordinary family or commercial dealing” exclusion is critical because even if there is an arrangement that could otherwise look like a reimbursement agreement, the exclusion may prevent section 100A from applying.
However, the ATO’s position is that the exclusion is not a blanket “family” carve-out. The dealing must be ordinary in the sense of being explainable by normal familial or commercial conduct, not primarily tax-driven.
From a practical accounting perspective, the ATO tends to be more comfortable where:
- The beneficiary actually receives funds, or
- The beneficiary’s entitlement is applied for their benefit (for example, to pay their own education costs, living costs, or to acquire an asset for them), and
- The arrangement can be evidenced contemporaneously (banking records, loan documents, resolutions, beneficiary acknowledgements).
Which trust distribution arrangements are now “high risk” under Section 100A?
Many practices are experiencing “zoning out” in these recurring patterns (aligned to the ATO’s risk framing in PCG 2022/2):
- Adult child beneficiaries made presently entitled, but funds are retained and used to pay parents’ mortgage, school fees of siblings, or general household expenses.
- “Back-to-back” arrangements where a beneficiary “receives” the entitlement but the money is quickly returned to the trust (or redirected) without a genuine purpose for the beneficiary.
- Distributions to beneficiaries with little to no understanding of the entitlement, no access to the funds, and no expectation of benefit.
- Arrangements designed primarily to access lower marginal tax rates without genuine wealth transfer.
It is established in ATO guidance that documentation alone is not determinative. The ATO expects evidence of who benefited economically.
What are practical examples of Section 100A issues in Australian accounting firms?
The following scenarios reflect the common real-world patterns that are now difficult to defend.
Example 1: Adult child distribution used by parents
A discretionary trust resolves to distribute $30,000 to an adult child at university. The trust retains the cash and uses it to pay the parents’ home loan interest and family groceries.- Likely ATO view: The adult child is a nominal beneficiary; parents benefited.
- Section 100A risk: Elevated, because the economic benefit does not align to the entitlement.
Example 2: Beneficiary receives cash, then “gifts” it back
A beneficiary receives the distribution into their bank account, but within days transfers it back to the trust (or to the parents) with no clear non-tax reason.- Likely ATO view: Conduit behaviour; pre-arranged reimbursement.
- Section 100A risk: Elevated unless the return transfer can be explained as a genuine transaction (for example, documented loan on commercial/family terms with a clear purpose).
Example 3: Distribution used to pay the beneficiary’s own expenses
A trust distributes $20,000 to an adult child, and the trust directly pays the child’s rent and university fees, with records showing those payments and the beneficiary’s benefit.- Likely ATO view: More defensible as an ordinary family dealing, depending on the broader context and evidence.
- Section 100A risk: Lower if clearly for the beneficiary’s benefit and properly documented.
Example 4: Bucket company entitlement with no clarity on benefit
A trust distributes $200,000 to a corporate beneficiary. The funds remain in the trust’s bank account and are applied to expenses that benefit individuals, with no loan agreement or clear record of the company’s use/benefit.- Likely ATO view: The company may be used as a tax-rate arbitrage vehicle rather than a genuine beneficiary.
- Section 100A risk: Can be significant, noting interaction risks may also arise under Division 7A depending on facts and how funds are accessed.
Disclaimer: The above examples are general in nature. Section 100A outcomes are highly fact-dependent and should be reviewed against current ATO guidance and the specific trust deed, resolutions, and cash movements.
How should accountants evidence “who benefited” to manage Section 100A risk?
To manage section 100A risk, the file must demonstrate that the beneficiary’s entitlement is real and that the beneficiary received or enjoyed the benefit.
A practical evidence checklist used in Australian practices typically includes:
- Trust distribution resolution and trustee minutes signed and dated correctly (aligned to the trust deed requirements).
- Beneficiary statements or acknowledgements (particularly for adult children beneficiaries).
- Bank evidence showing:
- Loan documentation if amounts are retained or redirected:
- Clear ledger narratives that explain the commercial/family purpose (not merely “distribution”).
- Avoidance of circular cash movements that look pre-arranged.
The ATO’s published compliance approach (PCG 2022/2) makes it clear that “substance and contemporaneous evidence” is what reduces review risk.
What is the safest operational approach for 2025 trust distributions?
The safest approach in 2025 is to align tax outcomes with actual economic outcomes.
From a practice management viewpoint, that usually means:
- If distributing to an adult beneficiary, ensure the beneficiary genuinely receives the cash or a direct benefit.
- If the trust needs to retain cash for working capital, consider whether the intended beneficiary can genuinely lend funds back under a properly documented arrangement (and whether that arrangement itself is commercially/factually credible).
- Avoid using adult children purely as marginal rate “buffers” unless the firm is satisfied the funds will be applied for their benefit and evidenced.
It should be noted that “we’ve always done it this way” is not a defensible position against TR 2022/4 and PCG 2022/2, particularly where the cashflow contradicts the purported entitlement.
How does Section 100A interact with common pain points like working papers and reconciliation?
Section 100A risk is frequently missed because many workflows prioritise the tax return labels and trust distribution minutes, but do not reconcile distributions to cash movements and beneficiary benefit.
Common practice pain points include:
- The trust distribution schedule is prepared, but the bank reconciliation does not tie distributions to payments or beneficiary-benefit expenses.
- Beneficiary loan accounts are posted without clear documentation or without consistent subsequent movements.
- Year-end journals are processed, but supporting evidence is not collated into the file.
This is precisely where automation can improve defensibility: if reconciliation, working papers, and beneficiary movements are traceable and reviewed quickly, section 100A risk can be identified before lodgment.
What systems reduce Section 100A risk in practice (and how does MyLedger compare)?
The operational challenge is not merely “knowing section 100A”. It is producing evidence at scale across dozens or hundreds of trust clients.
This is where AI accounting software Australia is moving the profession: faster automated bank reconciliation, tighter working papers, and clearer audit trails.
A practical comparison for trust-heavy practices:
- Automated bank reconciliation: MyLedger = 10–15 minutes per client (90% faster) using AutoRecon and AI-powered reconciliation, Xero/MYOB/QuickBooks = typically 3–4 hours when the workpaper evidence and exception handling are manual-heavy.
- Working papers automation: MyLedger = automated working papers and tax compliance tools (including BAS reconciliation software style outputs and structured workpapers), Xero/MYOB/QuickBooks = commonly rely on manual Excel workpapers and separate workpaper packs.
- ATO integration accounting software: MyLedger = complete ATO portal integration (client details, statements, transactions, due date tracking), many competitors = limited ATO linkage and often require separate portal work and manual downloads.
- Evidence readiness: MyLedger = transaction snapshots, bulk categorisation, mapping rules, and secure sharing to obtain client clarification faster, competitors = more fragmented evidence collection and comment trails.
- Cost model: MyLedger = expected $99–199/month unlimited clients (and currently free in beta), competitors = commonly per-file/per-client pricing that escalates (often $50–70/client/month equivalent in practice ecosystems once apps are included).
For firms actively managing section 100A risk, the decisive advantage is reducing the time cost of tracing “benefit flow” across bank accounts, ledgers, and workpapers—because section 100A arguments are won or lost on evidence.
How do you migrate your trust workflow from Xero/MYOB to a more automated process?
You do not need to “rip and replace” your entire ecosystem to improve section 100A defensibility. A staged migration is typically safest.
A practical approach used by firms moving toward an Xero alternative workflow for trust compliance:
- Identify trust clients with adult beneficiary distributions, bucket companies, or repeated UPE patterns.
- For those clients, implement stricter year-end procedures:
- Implement automated bank reconciliation for those files first (highest ROI).
- Standardise workpapers for:
- Expand the workflow practice-wide once the process is stable.
In practice, most “section 100A pain” is not technical tax complexity—it is inconsistent evidence and time constraints.
Next Steps: How Fedix can help reduce Section 100A pain
Fedix is designed for Australian accounting practices that need faster, evidence-driven compliance workflows. If section 100A has “zoned out” your historic trust distribution approach, the immediate operational requirement is to reconcile distributions to real-world benefit quickly and consistently.
With MyLedger by Fedix, practices can:
- Complete automated bank reconciliation in 10–15 minutes per client (instead of 3–4 hours).
- Use AI-powered reconciliation to identify exceptions where cashflow does not align with beneficiary outcomes.
- Generate automated working papers and maintain cleaner audit trails for review readiness.
- Leverage ATO integration accounting software capabilities (client details, ATO statements and transactions, due dates) to reduce manual portal work.
Learn more at home.fedix.ai and assess whether MyLedger fits your 2025 trust compliance workflow.