For mid-sized family businesses, complexity is often a by-product of success. As you grow, you naturally move from a single entity to a group structure – incorporating family trusts, bucket companies, and separate asset-holding vehicles.
However, as we move through 2026, the ATO has significantly intensified its scrutiny of how wealth and income flow between these entities. The era of informal family accounting is over. Today, every internal transaction must demonstrate a “Pattern of Real Bargaining.”
At Stewart & Smith Advisory, we are helping our clients navigate three critical red zones in complex family structures.
1. Trust Splitting vs. Trust Cloning
As the $3.5 trillion intergenerational wealth transfer accelerates, many families are splitting their large discretionary trusts into smaller, independent trusts for each child. While this is an excellent move for family harmony, the ATO is increasingly viewing these splits as CGT events (E1 or E2) unless they are handled with extreme precision.
- The Risk: If the ATO determines the split has created a new trust, they can trigger a massive, unintended capital gains tax bill on the underlying assets.
- The S&S Angle: You must be able to prove a clear commercial or succession-based reason for the split that goes beyond simple tax arbitrage. Documentation of the bargaining between family members is now a core requirement.
2. The Section 100A “Ordinary Dealing” Test
Section 100A is the ATO’s primary weapon against reimbursement agreements. This is where a trust distributes income to a low-tax beneficiary (like an adult child or a bucket company), but the actual economic benefit flows back to the parents or the main business.
- The 2026 Standard: The ATO now expects distributions to look like ordinary family or commercial dealings. If you distribute $100,000 to an adult child but use that money to pay down the parents’ mortgage, you are in the red zone.
- The Solution: Proper governance. This means ensuring that distributions are actually paid, or that any loan-back arrangements are documented with commercial terms, interest rates, and repayment schedules.
3. Division 7A: The Intercompany Debt Trap
For businesses with a bucket company, managing the debt owed by the trust back to the company is a perennial challenge. In 2026, the ATO is using advanced data-matching to identify stale loans that haven’t met their minimum yearly repayments.
- The Trap: If an intercompany loan is not managed under a strict Division 7A complying agreement, the entire loan amount can be deemed as an unfranked dividend – taxed at the highest marginal rate.
- The “Commercial Debt Forgiveness” Risk: Be wary of simply writing off debts between entities. Doing so can trigger the Commercial Debt Forgiveness rules, which can strip away your carried-forward tax losses.
The S&S Philosophy: Governance as a Moat
In this environment, good enough accounting is a liability. Our hands-on strategic model replaces the year-end scramble with contemporaneous documentation.
When we work with complex groups, we focus on:
- Formal Loan Agreements: Ensuring every intercompany dollar has a contractual home.
- Resolutions & Minutes: Documenting the why behind a restructure as it happens, not twelve months later.
- The “Arm’s Length” Test: If you wouldn’t do the deal with a stranger on those terms, don’t do it with your sister’s trust without a very clear, documented commercial justification.
Complexity shouldn’t be a source of stress. When managed with a pattern of real bargaining, a complex structure remains your most powerful tool for asset protection and wealth stewardship. Let’s ensure yours is built to last.
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