The ATO continues to focus heavily on Section 100A (reimbursement agreement) issues. Recent reviews show the ATO now expects a far higher standard of evidence that beneficiaries have received or benefited from the distributions allocated to them. The ATO has also declared this an area of focus for 2025–26. It has become very clear how critical proper trust administration, record-keeping, and banking processes are particularly where distributions are made to adult children.
To view the ATO’s official Areas of Focus for 2025-26 please click HERE
To help protect you and your trust, we strongly recommend the following:
1. Trust Bank Account – MUST Have One
- All trust income should flow through a separate trust bank account.
- Using a personal account or another entity’s account significantly increases the risk of the ATO treating distributions as not genuinely made.
2. Clear Evidence of Payments to (or for) the Beneficiary
If a distribution is made to an adult child, you must be able to show:
- Funds were actually paid to their personal account, or
- Funds were used on their behalf (e.g., rent, education costs, living expenses), and
- The beneficiary consented or understood the benefit received.
The ATO will not accept “paper-based” distributions if the adult child never actually received or benefited from the funds.
3. Maintain Proper Records
You should retain:
- Trustee resolutions
- Bank statements showing the flow of funds
- Evidence of any expenses paid for the beneficiary e.g. receipts & invoices
- Notes or agreements documenting how the funds benefited the beneficiary
Insufficient documentation is now one of the leading triggers for section 100A assessments.
4. Avoid Arrangements That Leave Funds in Parents’ or Business Accounts
Where the adult child’s share remains in:
- The parent’s personal account
- The business account, or
- A “loan account” without clear repayment terms
… the ATO increasingly treats these as reimbursement agreements, resulting in:
- The trustee being assessed at 45% tax
- Potential penalties and interest
5. Speak to Us Before 30 June Each Year
The best protection is proactively planning trust distributions before year-end, ensuring:
- Beneficiaries are appropriate
- The distribution can be properly supported
- Documentation is prepared on time
- Payments or reimbursements are structured correctly
If your adult children currently receive trust distributions or you plan for them to in the future, please reach out so we can ensure your trust remains compliant and protected from ATO scrutiny.
If you require any additional information, please do not hesitate to contact the team at [email protected] or call (02) 4365 6789. We are always happy to help.
Note: This article is for informational purposes only and does not constitute financial, legal, or tax advice. For tailored guidance, please reach out to our team at Kennedy Cross.
