About 100,000 trusts used by families and small businesses could be eligible for refunds totalling $1 billion from the Australian Taxation Office, after a ruling challenging interest payments on disputed loans.

Discretionary trusts that had their tax bill increased during the past 14 years are being advised by tax lawyers and accountants to lodge appeals to the ATO after the Administrative Appeals Tribunal (AAT) rejected the tax office’s argument that unpaid trust entitlements were loans under Division 7A of the Income Tax Assessment Act. Division 7A is intended to stop profits going tax-free to private company shareholders.