The End of Finacial Year is fast approaching and if you conduct your business or hold investments through a discretionary trust, it’s critical to ensure your trust income distributions are properly documented before the clock strikes midnight on 30 June.
Without a valid trustee income distribution resolution in place, the resolution is ineffective for tax purposes. The likely outcome? The entire taxable income of the trust may be assessed to the trustee at the highest marginal tax rate—potentially costing you thousands in extra tax.
Why Timing Matters for Trust Income Distributions
The tax law requires trustees to make valid trust income distributions before 1 July each year, and this must be done in accordance with the specific requirements of your trust deed. The ATO and the courts have made it very clear: distributions made after 30 June are not valid for tax purposes.
It’s also important to check the fine print of your trust deed. Some deeds require the trustee to make income distribution decisions on a date even earlier than 30 June.
Valid Resolutions & Trust Income Distributions
A valid resolution on trust income distributions must be properly executed and aligned with the requirements of your trust deed. In most cases, this involves a formal meeting of the trustee (or the directors of a trustee company) to decide how the year’s income will be distributed among beneficiaries.
That’s why trustees should ensure their accounting records are up to date well ahead of 30 June. This allows informed decisions to be made regarding how trust income should be distributed.
Present Entitlement vs. Payment
A trustee’s resolution about trust income distributions doesn’t mean the money needs to be paid to the beneficiaries right away. However, once income is allocated, that beneficiary becomes “presently entitled” to the amount. The income now belongs to them—and they can call for payment at any time.
Make an appointment with MacMillan Cowan and Co.
Most trust income distribution resolutions are signed during the month of June. If you are a trustee—or control a trustee company—make sure you’re available to sign the relevant distribution minutes before 30 June.
Need help managing your trust income distributions for EOFY 2025? The team at MacMillan Cowan & Co is here to make sure everything is compliant, timely, and aligned with your trust deed.
To make an appointment, contact our office on (03) 5222 2866 or enquire online.