Australia: Trust taxation - ATO flags new views on old rules – section 100A

Last Updated: 15 July 2014

The taxation of trusts and beneficiaries of trusts continues to be an ever-evolving practice.

On 3 July 2014 the ATO released a fact sheet outlining its views on an anti-avoidance rule (already in existence for over thirty years) and indicated that the rule may have broader application than many will have assumed.

Whilst representatives of the tax profession have been consulted on the fact sheet, it is fair to say that its contents will be contentious.

Set out below is some background on the issue followed by an outline of the key points arising from the fact sheet.


Section 100A was introduced in 1979 specifically to overcome certain "trust stripping" arrangements that were designed to enable trust profits. This section was introduced to escape tax, but has always had the potential for broader application than its intended purpose due to the general wording of the section.

The measure was introduced to counter arrangements referred to as "reimbursement agreements". The typical arrangement at which the measure was directed was one whereby a non-taxable beneficiary (e.g. a charity) was introduced as a beneficiary of a trust and was made entitled to trust income, but the relevant funds were not ultimately paid to that beneficiary and were instead enjoyed by another beneficiary or related party of the trust in a tax free form.

If applicable, section 100A deems the beneficiary to which the trust income was distributed not to be presently entitled and for the income to be treated as accumulated in the trust. The result is severe in that the relevant taxable income would not be assessed to the beneficiary that was entitled to it; rather the taxable income would be assessable to the trustee at the top marginal rate of tax. The other penal aspect of section 100A is that the Commissioner can review assessments indefinitely in order to apply it – section 100A is outside the normal timing limits on the Commissioner's amendment powers.

One key (although vaguely worded) exclusion from this anti-avoidance measure is that an "ordinary family or commercial dealing" is not affected.

Whilst many tax practitioners were of the view that this measure should be reserved for more glaring cases of tax avoidance, it is now publicly evident that the ATO's view of section 100A is much wider than this.

What is the ATO's view as per the fact sheet?

It is abundantly clear that the ATO regard section 100A as being potentially relevant to a broad range of circumstances where trust income is distributed but not paid to a beneficiary, not just more aggressive arrangements involving exempt charities.

The fact sheet gives a number of insightful examples as to when section 100A would not ordinarily be applied (based on the ATO view), when section 100A is likely to apply and also some indication on scenarios where section 100A may or may not apply, depending on the facts.

What scenarios would section 100A not apply to?

Based on the examples and commentary in the fact sheet, it is understood that the ATO would not generally (the ATO are very careful in their fact sheet to leave themselves "wiggle room") seek to apply section 100A in the following scenarios:

Example 1:

* Unpaid trust entitlement converted to complying Division 7A loan terms 1 or 1 placed on complying Division 7A sub-trust terms according to the Commissioner's Practice Statement. The ATO has also stated that they would not be looking to undertake active compliance resources to pre-16 December 2009 UPEs in this circumstance.

Example 2:

What scenarios would section 100A apply to?

It is clear from the fact sheet that the ATO does not like circular arrangements where a trust distributes income to a company beneficiary that is owned by the trust with the company paying dividends subsequently and repeating the arrangement annually, with the result that the funds are, in substance, accumulated within the trust, but only suffering tax at the corporate rate (not the higher rate applicable to income accumulations within a trust). The following diagram is reproduced from the ATO Fact sheet:

Example 3:

What other scenarios may be "in the mix"?

  • Interest free loans?

Consider Example 1 where the loan from the trust to "Other Person e.g. Beneficiary" is not on commercial terms. In these circumstances, whether section 100A might apply becomes less clear and, according to the ATO, will depend on the facts and whether the arrangement was entered into as part of "an ordinary family or commercial dealing". Whilst there may be some comfort in the vagueness of this condition, equally there is uncertainty. The ATO make the comment that the fact that a loan may not bear interest will not necessarily mean that it is not part of "an ordinary family or commercial dealing". This will depend on the full factual background to be determined in each case. However, it is implied in the fact sheet that, at the minimum, the ATO would need to be satisfied that the loan was made on a bona fide basis with the intention of repayment.

  • Grandfathered loans from trusts?

There may be a number of trust structures with longstanding unpaid entitlement balances due to beneficiaries on one side of the balance sheet with loans out to other related parties on non-commercial terms that predate (and therefore remain unaffected by) Division 7A rules that affect more recent arrangements. These have not been carved out from consideration, according to the views expressed in the ATO's fact sheet

  • Grandfathered pre-16 December 2009 unpaid entitlements owing to company beneficiaries

As noted under Example 1, the ATO is evidently not specifically targeting pre-16 December unpaid trust entitlements owing to company beneficiaries, provided that the funds have been retained as "working capital" in the trust. However, in the event that such funds may have been otherwise applied, these arrangements will potentially be up for consideration.

What action should be taken?

It is desirable to revisit existing structures and arrangements to ensure that you are well placed to respond to any questions that are raised in relation to section 100A. Careful consideration should be given to the full factual background and the applicability of the "ordinary family or commercial dealing" exception in this context and, where appropriate, how this can be best evidenced.


1 Or placed on complying Division 7A sub-trust terms according to the Commissioner's Practice Statement

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.