Family Trust Distributions & Section 100A Guide

Updated: April 2026

ATO Section 100A Audit Warning

The Australian Taxation Office (ATO) is aggressively cracking down on Family Trust distributions that breach Section 100A. If you distribute trust profit to adult children on paper to utilize their lower tax rates, but the parents actually keep or use the cash (e.g., to pay off a mortgage), the ATO views this as a "reimbursement agreement" and will penalize the income at the maximum top marginal rate of 47%.

Why use a Family Trust for tax savings?

Unlike companies, Discretionary Family Trusts do not have a fixed tax rate. The net profit generated by the trust each year can be flexibly distributed by the Trustee to family members on lower marginal tax rates (such as adult children studying at university or retired parents). Because Australia uses a progressive tax bracket system, shifting profit from high-income earners to low-income earners can drastically reduce the family's overall tax burden.

Trust Distribution Tax Estimator

Use the slider below to input the trust's net profit. Compare the tax outcome if 100% is given to one high-earning parent versus a 50/50 split with a zero-income adult child. (Estimates include recent tax cuts and 2% Medicare levy).

Scenario A: 100% to Parent

$24,188

Scenario B: 50/50 Split with Child

$13,276

Estimated Family Tax Saved: $10,912

How to distribute profit safely and legally

While distributing to lower-income family members saves tax (as shown above), the money must represent a genuine economic benefit to the beneficiary. To ensure compliance with Section 100A, you must:

  • Ensure the money changes hands: If you distribute $50,000 to your adult son, the money must physically be transferred to his personal bank account or be used to pay for genuine expenses in his name (e.g., university fees, a car).
  • Maintain proper paperwork: You must draft and sign a formal Trust Distribution Resolution before June 30 of the financial year.
  • Avoid "paper only" distributions: Never allocate profit to a child on paper while the parents retain the cash to invest or pay off their own mortgage. This is exactly what the ATO is targeting.

Professional Advice: The compliance burden for family trusts has never been higher. If you run a family business or hold significant investments through a trust, please book an EOFY Tax Planning session with us before mid-June to ensure your resolutions are legally sound.

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