Section 100A – The English Version

For those of you who operate through a Trust structure, the ATO has just finalised legislation (Sec 100A) which outlines how they’re going to treat distributions from Trusts. While this is an in depth topic (and you know how accountants love details), the below is a simplified version of what could become a can of worms for anyone who operates through a trust.

Section 100A is designed to stop arrangements where a distribution from a trust is made to one beneficiary (who is typically on a low tax rate) but the economic benefit (ie the actual cash) of the distribution is physically paid to a second beneficiary (who is usually on a higher tax rate). Section 100A stops the first beneficiary being entitled to the income. The ATO then assesses the Trustee of the Trust on that income at the top marginal tax rate (45%).

Below is an example of a typical arrangement which is now likely to attract the ATO’s attention and may now fall under Section 100A.

Lisa is the sole shareholder and controller of the trustee company (Silver Bricks Pty Ltd). Jack and Ryan are Lisa’s children, aged 21 and 19. They both live at home with Lisa, study full time and earn nil income.

The trust (Gold Trust) earns income during the year and makes regular payments to Lisa during the year. These payments are recorded against Lisa’s beneficiary loan eg Owners Drawings account.

At the end of the year, Jack and Ryan are made presently entitled to all of the income of Gold Trust. The trustee company applies their entitlements against the beneficiary loan (owners drawings) owed to Lisa because they each purportedly have an outstanding debt owed to Lisa in respect of education expenses and their share of the household expenses that Lisa paid before they each turned 19.

Using the above example, if the ATO chose to apply Section 100A, the income distributed (on paper) to Jack and Ryan would then be assessed in the hand of the trustee company at 45% tax rate.

Therefore, following on from the above, it has now become more important than ever to ensure the paper trail follows the money.



Kim Jay