When you manage your affairs through a trust, the end of the financial year in Australia is more than simply a chance to balance your accounts. It also marks a hard deadline for deciding who will receive the trust’s income. This decision is formalised in a Trust Distribution Resolution. If you miss the 30 June cut-off, the Australian Taxation Office (ATO) may tax undistributed income at the highest rate, potentially wiping out your tax-planning benefits. At A Plus Accountant, we specialise in structure setup and want to explain why acting before the 30 June deadline is so important.
What Is a Trust Distribution Resolution?
A Trust Distribution Resolution is a written record, signed by your trustee or trustees, that sets out exactly how the trust’s net income for the financial year (to 30 June) will be allocated among its beneficiaries. It must name each beneficiary and state the dollar amount or percentage of income they are to receive. Once signed and entered into your trust minutes, it becomes the legal basis for each beneficiary’s “present entitlement” to that income.
The Tax Reason You Cannot Delay
Under Australian tax law, trust income is taxed in the hands of whichever beneficiary holds present entitlement. That entitlement arises only when the trustee signs a valid distribution resolution by midnight on 30 June. Here are the key consequences:
Beneficiary Entitlement
To be taxed at their own rate, beneficiaries must be made presently entitled by a resolution executed by 30 June. Without that step, the ATO regards the income as not distributed.
Trustee Tax Rate
Any net income left undistributed—or for which no beneficiary holds present entitlement by 30 June—may be taxed at the trustee’s top marginal rate (45 per cent for the 2023–24 year, plus the Medicare levy). That rate is substantially higher than standard individual or corporate rates and can seriously erode the trust’s returns.
Strategic Tax Planning
By finalising your distribution resolution on time, you can direct income to beneficiaries on lower marginal tax rates—such as adult children, adult family members, companies or other trusts—thereby reducing the overall tax paid by your trust group.
What Happens If You Miss the Deadline?
If you do not pass your resolution by 30 June, the ATO’s default position is that no beneficiary has present entitlement. As a result, the entire amount of net trust income is taxed at the trustee rate. This outcome can destroy any tax advantages you hoped to gain by using a trust structure.
Crafting a Valid Resolution
While trust deeds vary, a compliant distribution resolution typically requires the following:
- Identification of the trust and the applicable financial year.
- A statement of the total distributable net income for that year.
- A clear listing of beneficiaries alongside the specific amounts or proportions of income each is to receive.
- Signing by all relevant trustees and insertion into your trust minutes.
Even minor errors or missing details can render a resolution invalid, so precision matters.
Four Steps to Meet Your 30 June Deadline
- Estimate Your Net Trust Income
Work with your accountant to project the trust’s taxable income for the year ending 30 June. This figure underpins your distribution planning. - Review Beneficiaries’ Tax Circumstances
Consider each beneficiary’s personal tax rate, their other income and any tax concessions (for example, small-business CGT concessions or family-law considerations) to determine who is best placed to receive distributions. - Prepare & Sign the Resolution
Draft the resolution in accordance with your trust deed, record it in the trust minutes and obtain all required trustee signatures before midnight on 30 June. - Document & File
Keep a copy of the signed resolution with your trust records. Your accountant will use it to finalise the trust’s tax return.
How A Plus Accountant Can Assist
Navigating trust distribution can be intricate, especially when you juggle different beneficiaries and evolving tax legislation. Our team at A Plus Accountant offers specialist support in structure setup and trust accounting. We can:
- Calculate your trust’s net income accurately.
- Advise on tax-efficient distribution strategies tailored to your family or corporate group.
- Prepare and review your distribution resolution to ensure it meets all legal requirements.
- Liaise with the ATO on your behalf to address any queries and confirm compliance.
By engaging our services early—well before 30 June—you ensure your trust remains tax-efficient and compliant.
Final Thoughts
The 30 June deadline for passing a Trust Distribution Resolution is not just a procedural formality. It is the linchpin of effective trust tax planning. Allowing your resolution to slip beyond that date can result in heavy trustee-level taxation and lost opportunities for directing income to beneficiaries with lower tax rates.
At A Plus Accountant, our expertise in structure setup and trust accounting means we understand the stakes and the details. Contact us today to make sure your trust distribution is handled correctly—so you can focus on achieving your wider financial and family goals.