Trust distribution resolutions: why 30 June is a hard deadline
A trust distribution is a trustee decision made under a deed. It cannot safely be reconstructed after year-end from the tax result you prefer.
The resolution creates the entitlement
A discretionary trust does not allocate income merely because an accountant later enters a beneficiary amount in the tax return. The trustee must exercise the distribution power under the trust deed so the intended beneficiary is presently entitled to the relevant income.
The ATO's published guidance states that trustees should make resolutions by the end of the income year, which is 30 June for most trusts. Some deeds require an earlier date or a particular process. The deed comes first, so it should be reviewed before the resolution is prepared.
The final accounts do not need to be finished
A valid resolution does not always need a final dollar figure. Subject to the deed, it can use a clear methodology, such as a percentage of trust income or a specified amount with the balance to another beneficiary. That lets the trustee decide by 30 June while the accounts are still being completed.
The wording must still be certain enough to identify the entitlement. A vague intention to distribute tax-effectively later is not the same as exercising the power now.
Capital gains and franked distributions need attention
Tax law contains specific rules for beneficiaries to be specifically entitled to capital gains and franked distributions. The deed, the accounts and the resolution need to work together. A general income resolution may not produce the intended result for those amounts.
Before year-end, identify asset sales, trust distributions received from other entities and dividends carrying franking credits. The trustee can then consider the right resolution while there is still time to meet any deed and tax requirements.
What can happen after 30 June
If no beneficiary is presently entitled at year-end and the deed does not make a default beneficiary entitled, the trustee may be assessed on the trust's net income. The tax rate and outcome can be materially different from the intended beneficiary assessment.
Backdating a resolution is not a remedy. The signed record should reflect a decision actually made by the required time. Electronic signing can help evidence timing, but it does not repair a decision that did not occur.
A practical year-end file
Keep the signed resolution with the trust deed, any amendments, trustee minutes, year-end estimate and evidence of how the decision was made. Confirm beneficiary details and tax file number reporting obligations. Then reconcile the final accounts and tax return to the resolution's methodology.
- Review the deed and prior amendments
- Estimate ordinary income, capital gains and franked distributions
- Confirm eligible beneficiaries and any streaming powers
- Make and record the trustee decision by the required date
- Reconcile the final distribution schedule to the resolution
Primary sources
Rules and lender requirements change. These sources were checked when this article was published.
This article is general information current at the date of publication. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to a registered tax agent about your situation.
