Is Your Trust Deed Outdated? Navigating Trust Streaming and 100A in 2026

As we move into the 2026-27 financial year, the Australian taxation landscape for family trusts has reached a critical turning point. For years, discretionary trusts have been the preferred vehicle for French expats and local investors to manage wealth, but the legal requirements for 'streaming' income and the ATO's scrutiny of distributions have never been more stringent. With significant updates to social levy rates for Australian residents and a renewed focus on the technical language within trust deeds, ensuring your structure remains compliant is no longer optional—it is a matter of tax survival.

The Streaming Requirement: Why 'Character' Matters

The ability to 'stream' specific types of income, such as capital gains and franked dividends, to certain beneficiaries is one of the primary tax benefits of a family trust. However, the Australian Taxation Office (ATO) maintains that this is only possible if the trust deed contains explicit powers that allow the trustee to preserve the 'character' of that income [1]. Without these specific provisions, the ATO may disregard your streaming strategy and tax the income proportionately across all beneficiaries, potentially leading to higher tax liabilities and the loss of capital gains tax (CGT) discounts.

This requirement is anchored in the legal principles clarified by the High Court in cases such as Commissioner of Taxation v Carter [2022] HCA 10, which emphasized that the 'present entitlement' of a beneficiary must be clearly established by the end of the financial year [2]. In 2026, many older trust deeds are being found legally insufficient because they lack the precise 'character preservation' language required to satisfy modern streaming rules under Subdivision 115-C of the Income Tax Assessment Act 1997 [1].

Section 100A: The End of 'Paper Distributions'

A significant focus of the ATO’s 2026 compliance program is Section 100A of the Income Tax Assessment Act 1936, which targets 'reimbursement agreements' [3]. These are arrangements where income is distributed to a low-tax beneficiary (such as an adult child or a student), but the actual cash is retained by the trustee or another party. For the 2026 financial year, the ATO has intensified its review of discretionary trusts, particularly those where physical cash does not follow the paper distribution.

Where the ATO determines that a distribution constitutes a reimbursement agreement, the income is taxed to the trustee at the highest marginal rate of 45% plus the Medicare levy, rather than at the beneficiary's lower rate [3]. To avoid this, trustees must ensure that distributions are made for legitimate commercial or family purposes and that beneficiaries actually receive or have control over the funds they are entitled to.

Division 7A and the Cost of Bucket Companies

The use of 'bucket companies' (corporate beneficiaries) to cap tax rates at 25% or 30% remains a common strategy. However, the cost of this strategy has risen. For the 2024-25 financial year, the benchmark interest rate for complying loans under Division 7A was set at 8.77% [4]. As we progress through 2026, the ATO continues to mandate that any Unpaid Present Entitlements (UPEs) owed to a company be converted into complying 7-year or 10-year loans to avoid being treated as deemed dividends [4].

Additionally, for the broader context of Australian wealth management, the Superannuation Guarantee (SG) rate has reached its final legislated peak of 12% as of 1 July 2025, and remains at 12% for the 2026-27 period [5]. Investors must factor these higher employer contributions and loan interest rates into their overall cash flow and liquidity planning.

French Expats: The 2026 Social Levy Update

For French citizens residing in Australia, the 2026 social security and tax landscape presents unique challenges. Under the Loi de Financement de la Sécurité Sociale (LFSS) 2026, the social levy rates have been adjusted. While French rental income (revenus fonciers) and property capital gains remain subject to a total levy of 17.2%, the CSG on 'mobile' financial income—such as dividends, interest, and securities gains—has risen to 10.6% [6]. This brings the total social levy on these financial assets to 18.6% for Australian residents.

Importantly, because Australia is considered a 'third country' (not part of the EEA, Switzerland, or the UK), residents cannot claim the exemption from CSG/CRDS granted by the De Ruyter or Jahin case law [7]. There is currently no bilateral social security agreement between France and Australia that would provide relief from these levies [8].

The convergence of Australian trust law scrutiny and updated French social levy rates makes 2026 a pivotal year for investors. Ensuring your trust deed is technically sound and your distribution strategies are well-documented is essential to protecting your family's wealth and maintaining the tax-effective nature of your investment structure.

Sources

• [1] Australian Taxation Office, Streaming trust capital gains and franked distributions: https://www.ato.gov.au/individuals-and-families/investments-and-assets/trusts/trust-income/streaming-trust-capital-gains-and-franked-distributions
• [2] High Court of Australia, Commissioner of Taxation v Carter [2022] HCA 10: https://austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/2022/10.html
• [3] Australian Taxation Office, Trust taxation - reimbursement agreements (Section 100A): https://www.ato.gov.au/about-ato/tax-avoidance/trust-tax-avoidance/reimbursement-agreements
• [4] Australian Taxation Office, Division 7A benchmark interest rates: https://www.ato.gov.au/tax-rates-and-codes/division-7a-benchmark-interest-rate
• [5] Australian Taxation Office, Super guarantee rates: https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee
• [6] Direction générale des Finances publiques (DGFiP), Social levies for non-residents: https://www.impots.gouv.fr/international-particulier/questions/je-suis-non-resident-suis-je-redevable-des-contributions
• [7] Court of Justice of the European Union, Case C-45/17 (Jahin): https://eur-lex.europa.eu/legal-content/fr/TXT/?uri=CELEX:62017CJ0045
• [8] Assemblée Nationale, France-Australia social security negotiations: https://questions.assemblee-nationale.fr/q16/16-6186QE.htm

This article contains general educational information only and does not constitute personal financial, legal, or tax advice. Please consult a licensed professional before making any financial decisions.