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Distributions to tax-exempt beneficiaries: anti-avoidance rules

Check the anti-avoidance rules in s100AA and 100AB preventing trustees from using tax-exempt entities to avoid tax.

Last updated 21 April 2016

This information is for trustees with tax-exempt beneficiaries who are presently entitled to trust income.

Specific anti-avoidance rules prevent trustees from using tax-exempt entities to avoid tax (sections 100AA and 100AB of the Income Tax Assessment Act 1936).

Broadly, the anti-avoidance rules apply if a tax-exempt beneficiary is presently entitled to trust income for an income year and:

  • the trustee does not notify the beneficiary of their entitlement or pay the income within two months of the end of the year – this is the pay or notify rule, or
  • the beneficiary's entitlement exceeds a 'benchmark percentage' – this is the benchmark percentage rule.

If either of these rules apply, the tax-exempt beneficiary is treated as not being – and never having been – presently entitled to the affected share of trust income. This share of net income is instead assessed to the trustee.

Find out when and how the pay or notify rule applies.

Find out about specific anti-avoidance rules that are called the 'pay or notify' rule and the 'benchmark percentage' rule.