The way your trust income is allocated plays a crucial role in determining who is responsible for paying tax and at what rate. While accounting and taxation may seem distinct, trust distributions directly influence tax outcomes. The wording of a distribution resolution is particularly important - not because it dictates what is taxable, but because it determines where the tax liability falls. If the resolution is not properly prepared, the trustee may be required to pay tax at the highest marginal rate, which can significantly impact the trust’s overall tax position.

1. Tax Compliance – It ensures that income is appropriately allocated to beneficiaries before the end of the financial year, preventing unintended tax consequences.
2. Avoiding Trustee Tax Liability – If a resolution is not made before June 30, any undistributed income may be taxed at the highest marginal tax rate (47% in Australia in 2025).
3. Control Over Distributions – Trustees can optimise tax outcomes by distributing income to beneficiaries in a tax-efficient manner.

• Date – It must be made before June 30 of the relevant financial year.
• Trust Details – Name of the trust and the trustees making the resolution.
• Income Definition – Clarification on what constitutes "income" under the trust deed.
• Distribution Allocations – The percentage or dollar amounts distributed to each beneficiary.
• Capital Distributions (if applicable) – Any decisions regarding capital payments.
• Special Conditions (if required) – Any clauses affecting the timing or nature of distributions.

A trust’s net income is taxed based on how it is allocated to beneficiaries. To ensure that the income is correctly distributed, the trustee must prepare a document called a Trust Distribution Minute by June 30 each year. This document formally states how the trust’s income is allocated among beneficiaries, making them ‘presently entitled’ to that income for tax purposes.

If a trust fails to prepare this document in time, the trustee may be liable for tax at the highest marginal rate - an outcome that is best avoided.

• Trustees of discretionary trusts (family trusts, unit trusts, hybrid trusts, etc.) need to pass this resolution.
• Accountants and tax advisors usually assist in structuring the resolution to maximise tax efficiency.

If the trustees don’t make a valid resolution to distribute the trust’s income before June 30, any decision made afterward won’t count. This can lead to unintended problems:

• The default beneficiaries (as listed in the trust deed) will automatically be considered entitled to the trust’s income and will be taxed on it – even if they never actually receive the money because it was already given to someone else.
• If no beneficiary is entitled to the income by June 30, the trustee may be taxed on the income at the highest tax rate (47%) under section 99A.

Yes, a trust distribution minute must be prepared each year based on that year’s income. Even if you anticipate a loss, it is important to prepare one in case unexpected revenue arises that needs to be distributed.

Yes. You can prepare the distribution minute, making the appropriate allocations to beneficiaries, and provide a signed final version to our office for reference during tax return preparation. However, please note that we cannot provide advice on allocations or supply a template for self-preparation.

Yes, and their focus on trust distributions has significantly increased in recent years. While the laws themselves have not changed, a major tax case prompted the ATO to clarify that trust distribution minutes must be completed before June 30 to be valid.

Recent changes impacting trust distributions include:

• New ATO tax rulings (related to Section 100A of the Income Tax Assessment Act) that may limit how Family Trusts distribute profits. https://www.smartbusinesssolutions.com.au/insights/the-atos-attack-on-trusts-and-trust-distributions/
• A Court unwinding a Trustee’s Family Trust Distribution when 2 children complained they didn’t get enough money.
• New ATO guidance restricting how “Professionals” can allocate income across their family group.