In the past, it has been common practice by most accountants to have a rough idea of trust income at 30th June and then (ahem) backdate the distribution resolutions when the tax returns are completed, usually months later.

The tax office has stepped up their campaign this year though and are now insisting that trusts make their beneficiaries “presently entitled” to income before EOFY.

Failure to do so will see the income taxed in the trustee’s hands instead, at the maximum tax bracket. Ouch!!
The phrase “presently entitled” doesn’t necessarily mean that the beneficiaries need to receive the cash prior to 30th June; just that the income needs to be allocated to them by that date.

So, we strongly recommend drawing up a draft resolution prior to 30th June in order to keep the tax office happy. They have even indicated that they will be approaching over 1,200 trustees in the first week of July to ensure that they have completed those resolutions as required.

The resolutions don’t need to be ‘perfect’ or formatted in the same way that we do them, but do need to specify either an amount or percentage of income attributable to the beneficiaries and these cannot be adjusted when the returns are complete. If your trust deeds are up to date, then you should be able to attribute certain amounts of certain types of income to certain beneficiaries, with the balance belonging to others.

For example,

  • The first $416 of ordinary income to Child #1,
  • The next $416 of ordinary income to Child #2,
  • All capital gains and 30% of the remaining ordinary income to Dad, and,
  • The balance of ordinary income to Mum.

It’s also worth remembering that if your trust is a unit or hybrid trust, certain income may be required to be attributed to a particular unitholder and the resolution should reflect this, too.

If you would like our help in drafting these resolutions before 30th June rather than attempting to complete them yourselves, just shout and we’ll be able to get something organised for you. Either way, it will be important to have something in writing prior to 30th June to keep yourselves out of trouble.