The 2026-27 Federal Budget, Part 7: Section 100A Explained Simply and What Families Need to Know About Trust Distributions
- Zac Hayes
- May 31
- 6 min read
A lot of families with trusts have heard about "Section 100A" over the past few years and immediately felt confused, stressed, or overwhelmed.
And honestly, that reaction makes sense.
The language around trusts and tax law can become incredibly technical very quickly.
But when you strip away the legal jargon, Section 100A is really about one simple issue:
Who actually receives the benefit of the trust income?
That is what the ATO is focused on.
And after the 2026 Federal Budget changes, this conversation has become even more important for families using discretionary trusts.
A note on timing: several of the Budget measures mentioned in this article are announced and not yet law. They are subject to legislation passing Parliament and the final design may change.
First, What Is Section 100A?
In simple terms, Section 100A is an anti-avoidance rule.
It is designed to stop situations where trust income is distributed to one person for tax purposes, but someone else keeps or uses the money.
The ATO has become much more aggressive in reviewing these arrangements over the past few years.
Especially where trusts distribute income to adult children on lower tax rates.
The Simple Example Most Families Need to Understand
Let's say:
• A family trust earns $400,000 profit
• The trust distributes $40,000 to an adult child at university
• The adult child pays very little tax because their income is low
On paper, that looks fine.
But then imagine the money never really goes to the child.
Instead:
• The parents keep the money
• The money gets transferred back
• Or the child never actually controls the funds
That is where the ATO starts paying attention.
Because from the ATO's perspective, the child received the tax benefit, but someone else received the real economic benefit.
That is the type of arrangement Section 100A was designed to target.
What Happens if the ATO Thinks Section 100A Applies?
This is where the consequences can become serious.
If the ATO decides a distribution falls under Section 100A:
• The trust distribution can be ignored
• The trustee may be taxed at the top tax rate of 47%
• Interest and penalties may apply
• The ATO can review historical years as well
That is why proper documentation and genuine cash flow matter so much.
What Changed After the 2026 Budget?
Interestingly, Section 100A itself did not actually change.
The rules are still the same.
But the environment around trusts changed significantly.
From 1 July 2028, discretionary trusts are expected to pay a minimum 30% tax on the trust's taxable income at the trustee level.
That means the old style strategy of streaming income through trusts to lower income family members becomes far less attractive.
And because of that, many families are now restructuring the way income flows entirely.
If you operate through a family trust, receive trust distributions, or use a bucket company arrangement, the post-Budget rules may change how your structure works moving forward.
The Business and Wealth Collective's Post-Budget Trust and Company Structure Strategy Session can help you review your current position and identify what may need attention before EOFY.
Why Share Classes Are Becoming More Popular
This is one of the biggest post Budget shifts.
Previously, many families used trusts as the main way to distribute income around the family group.
But after the proposed trust tax changes, many structures are now moving toward company share classes instead.
This sounds technical, but the idea is actually quite simple.
Different family members hold different classes of shares in a company.
For example:
• Mum holds A Class shares
• Dad holds B Class shares
• Adult children hold C Class shares
The company can then potentially pay dividends directly to those shareholders.
Importantly:
This is not a trust distribution.
And because it is not a trust distribution, Section 100A generally does not apply in the same way.
That said, companies have their own anti-avoidance rules to navigate, including Part IVA and Division 7A, so share class structures need to be properly designed.
That is one of the reasons share class structures are becoming much more common after the Budget changes.
Why This Matters for Everyday Families
A lot of families set up trusts years ago because that was the standard advice at the time.
And for many years, those structures worked well.
But the rules have changed.
That does not mean trusts are suddenly bad.
It simply means the strategy around trusts now needs to evolve.
For many families, the focus is shifting from:
• "How do we distribute income through the trust?"
to:
• "What is the best long-term structure moving forward?"
That is a very different conversation.
The Biggest Mistake Families Make
One of the biggest problems we see is people treating trust distributions like paperwork only.
For example:
• Minutes are signed
• Distributions are declared
• But the money never actually moves
That creates risk.
The ATO wants to see that the arrangement reflects what genuinely happened in real life.
If someone receives a distribution, they should genuinely benefit from it.
That means:
• The money should actually be paid
• The beneficiary should control it
• The arrangement should make commercial and family sense
Good documentation matters.
But genuine behaviour matters even more.
What the ATO Is Really Looking For
In most cases, the ATO is focused on arrangements where:
• Adult children receive distributions on paper only
• The money flows back to parents
• The trust keeps using the funds
• Tax savings appear to be the main purpose
That is where problems usually begin.
But where distributions are genuine, documented properly, and the beneficiary truly receives the benefit, the risk is much lower.
Why Structure Reviews Matter More Now
The 2026 Budget changed the economics of discretionary trusts significantly.
That means many families should now review:
• Whether their trust structure still makes sense
• Whether share classes should be introduced
• Whether the trust is still the best long term income flow vehicle
• How future wealth planning should work
• Whether existing distributions create risk
A structure that worked perfectly five years ago may no longer be the best fit moving forward.
If you are unsure whether your trust distributions, company structure or family setup still make sense after the new Budget changes, now is the right time to review it properly.
Book your Post-Budget Trust and Company Structure Strategy Session before EOFY.
The Bigger Picture
At the end of the day, trust structures should not just exist to save tax.
Good structures are about:
• Asset protection
• Long term family wealth
• Flexibility
• Retirement planning
• Succession planning
• Reducing risk
The families who usually build lasting wealth are not chasing aggressive shortcuts.
They are building systems that work over decades and can adapt as rules change.
That is the real goal.
Final Thoughts
Section 100A itself did not change after the Budget.
But the world around trusts absolutely did.
The old-style trust distribution strategies are becoming less effective.
And for many families, the future will involve a much greater focus on:
• Share class structures
• Smarter income flow planning
• Better documentation
• Genuine family wealth planning
• Long term flexibility
The important thing is not panicking.
It is reviewing your structure properly and making sure it still works for your family moving forward.
Review Whether Your Trust Structure Still Works
Every family situation is different. The right structure depends on your income, investments, business interests, family goals and long-term wealth plans.
Book your Post-Budget Trust and Company Structure Strategy Session with The Business and Wealth Collective.
General Information Disclaimer
This article provides general information only and does not take into account your personal circumstances, objectives, financial situation, tax position or legal structure. It is not personal tax, financial, legal or investment advice.
The Federal Budget measures discussed in this article were announced on 12 May 2026 and many require legislation, regulations, ATO guidance or further program detail before they take effect. The final rules, eligibility criteria, thresholds, timing and practical outcomes may change.
Before making decisions about tax, superannuation, property, trusts, business structures, investments, asset sales or contributions, you should obtain advice based on your specific circumstances.
The Business & Wealth Collective can help you review your position and identify which areas may require further advice before EOFY.
Tax agent services within The Business & Wealth Collective are provided by Configured Business Solutions Pty Ltd (Tax Agent No. 26109304).
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