A trust distribution resolution is one of the most important decisions a trustee makes. It determines how trust income or assets are distributed to beneficiaries and directly affects accounting and tax outcomes.
In Australia, trusts are widely used for estate planning, asset protection and tax management. Understanding how trust distribution resolutions work helps both trustees and beneficiaries meet their legal obligations and optimise financial outcomes.
Table of Contents
- Understanding Trust Distribution Resolutions
- Accounting Essentials for Trust Distribution
- Tax Implications for Trust Distributions
- Challenges Trustees Should Watch Out For
- Best Practices for Effective Trust Management
- Avoid Extra Tax with a Trust Distribution Resolution Before 30 June 2024
- Conclusion
- Trusts Distributions FAQs
Understanding Trust Distribution Resolutions
A trust distribution resolution is a formal decision made by trustees to distribute income or capital from a trust to its beneficiaries. These resolutions are guided by the trust deed which outlines:
- The rights of beneficiaries
- The powers and duties of trustees
- The timing, purpose and frequency of distributions
Types of Trusts
In Australia most family or business trusts are discretionary trusts. This structure gives trustees flexibility to decide:
- Who receives a distribution
- How much each beneficiary receives
That flexibility allows trustees to adapt to changing financial circumstances and beneficiary needs.
Accounting Essentials for Trust Distribution
Accurate accounting is vital to proper trust management. Trustees must maintain transparent and detailed records of:
- Income and expenses
- Capital gains or losses
- Distributions made to beneficiaries
Compliance Requirements
In Australia trustees must follow Australian Accounting Standards (AASB) and meet ATO reporting obligations.
Good accounting ensures trustees can:
- Assess the trust’s financial position
- Make informed distribution decisions
- Provide beneficiaries with transparency and confidence
Tax Implications for Trust Distributions
Tax plays a major role in how distributions are planned and reported. The tax treatment of a trust distribution depends on several factors:
- Whether the payment is income or capital
- The residency of beneficiaries
- The type of trust structure
Common Taxes That Apply
- Income Tax: Beneficiaries generally pay tax on trust income distributed to them.
- Capital Gains Tax (CGT): Applies to gains on assets sold by the trust.
- Withholding Tax: May apply to non-resident beneficiaries.
Why Discretionary Trusts Are Popular
Discretionary trusts are often used in tax planning because trustees can distribute income to beneficiaries in lower tax brackets, reducing the overall tax payable.
However, this flexibility requires careful management and accurate record-keeping to stay compliant with ATO requirements.
Challenges Trustees Should Watch Out For
Managing trust distribution resolutions can be complex. Trustees must balance financial, legal and interpersonal considerations, such as:
- Conflicting beneficiary interests (different needs or tax positions)
- Compliance with the trust deed and Australian trust law
- Changing beneficiary circumstances, like marriage, divorce or residency changes
- Investment decisions, ensuring returns align with trust objectives
Clear communication among trustees, beneficiaries and professional advisors helps resolve these challenges and maintain trust integrity.
Best Practices for Effective Trust Management
To manage a trust effectively, trustees should follow these best practices:
- Review the trust deed regularly to ensure decisions comply with its terms.
- Keep detailed financial records for transparency and accountability.
- Engage professional advisors (accountants, lawyers or financial planners) for guidance.
- Communicate openly with beneficiaries about decisions and outcomes.
- Stay adaptable by reviewing the trust’s structure and strategy annually.
Proactive management helps maintain compliance and ensures the trust continues to meet its purpose.
Avoid Extra Tax with a Trust Distribution Resolution Before 30 June 2024
Trustees must make and document trust distribution resolutions before 30 June each year to ensure income is distributed for that financial year.
Failing to do so means the ATO may tax the trust at the highest marginal rate (47%), rather than assessing income to beneficiaries.
To avoid unnecessary tax:
- Review your trust’s financial results before 30 June.
- Finalise distribution resolutions in writing.
- Keep records showing how and when the resolution was made.
Working with your accountant ensures your resolution meets ATO standards and maximises tax efficiency.
Conclusion
Trust distribution resolutions are a cornerstone of trust management in Australia. They influence how income is distributed, how taxes are calculated, and how effectively trustees meet their duties.
By understanding the accounting, legal and tax aspects, and by acting before 30 June 2024, trustees can protect the trust, avoid unnecessary tax and achieve fair outcomes for all beneficiaries.
If you need help preparing your trust distribution resolution, contact Carbon Accounting & Tax for expert guidance tailored to your situation.
Trusts Distributions FAQ
A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries according to the terms specified in a trust deed. The trustee has a fiduciary duty to manage the assets in the best interests of the beneficiaries.
Trusts are commonly set up for various purposes, including estate planning, asset protection, tax minimisation, and charitable giving. They provide flexibility and control over the distribution of assets, allowing individuals to tailor their arrangements to meet specific goals and objectives.
Anyone with assets to be held for the benefit of others can set up a trust. This includes individuals, families, businesses, and charitable organisations. Trusts can be established during one’s lifetime (inter vivos trusts) or through a will (testamentary trusts).
A trust distribution resolution refers to the formal decision made by trustees regarding the allocation of trust assets to beneficiaries. It is a key aspect of trust administration where trustees determine how and when to distribute income or capital to beneficiaries according to the terms of the trust deed.
Trustees should consider various factors, including the terms outlined in the trust deed, the financial needs of beneficiaries, potential tax implications, and the overarching objectives of the trust. It’s essential to balance the interests of beneficiaries while fulfilling fiduciary duties and complying with legal requirements.
Trust distributions may attract tax obligations, depending on various factors such as the nature of the distribution (income or capital), the residency status of the trust and beneficiaries, and applicable tax laws. Trustees must navigate complex tax rules to ensure compliance and optimise tax efficiency.
The frequency of trust distribution resolutions may vary depending on the terms of the trust deed and the needs of beneficiaries. Trustees typically exercise discretion in determining the timing of distributions, ensuring alignment with trust objectives and legal requirements.
Trustees may encounter challenges such as balancing the competing interests of beneficiaries, adhering to the terms of the trust deed and legal obligations, addressing changes in beneficiary circumstances, and managing investment decisions to maximise returns while mitigating risk.
Yes, trust distributions can be tailored to meet the specific needs and circumstances of beneficiaries. Trustees have discretionary power to determine which beneficiaries receive distributions and in what amounts, allowing for flexibility in addressing individual requirements.
Professional advisors including lawyers, accountants, and financial planners, play a crucial role in assisting trustees with trust distribution resolutions. They provide expertise and guidance on legal, accounting, and tax matters, ensuring compliance with regulations and optimising outcomes for beneficiaries.
Trustees can ensure transparency and accountability by maintaining accurate records of trust transactions, communicating openly with beneficiaries about distribution decisions, and seeking professional advice when necessary. Transparency fosters trust among beneficiaries and mitigates the risk of disputes.
