Trust Distributions Before 30 June

Trustee resolutions must be made by 30 June

When making trust resolutions trustees need to consider:

• trustee resolutions to distribute the income of the trust must be made by 30 June 2013.
• the ATO will not accept resolutions which purport to:
• change the entitlements of beneficiaries in the event of future adjustments to the trust's taxable income by the ATO;
• distribute (create a present entitlement to) notional income which does not result in an accretion to the trust (e.g. franking credits and non-deductible expenses), and
• stream other types of income (other than capital gains and franked dividends) to different beneficiaries.

Taxpayers need to be aware it is critical that trustee resolutions are made by 30 June each year. The ATO information sheet states that informal written records of a resolution of the trustee before 30 June (which are later documented in a formal minute or resolution) will be acceptable evidence of a resolution being made before 30 June.

Generally, if the trust deed allows, an oral resolution will be effective to distribute the income of the trust before 30 June, and the resolution can be later recorded in writing. However, it appears the ATO would be likely to challenge the legitimacy of an oral resolution alone, on the basis of a lack of evidence of the resolution being made before 30 June. Challenges may occur particularly if the resolution purported to have been made before 30 June included information that was unlikely to have been known at the time (e.g. exact dollar amounts of income).

Trustees should note when making the actual resolution:

• Make a resolution in writing, and where possible, have every trustee, or every director of the corporate trustee, sign the resolution by 30 June 2013.
• Be wary of dealing with franking credit gross up amounts and non-deductible expenses.
• Use percentages and 'balance' distributions to ensure all of the income and capital gains of the trust are effectively distributed by 30 June 2013.
• Do not make resolutions which change (e.g. 'in the event of a future amended assessment by the Commissioner of Taxation...')
• If the trust has a discount capital gain, make sure the total gross amount (i.e. the discount and non-discount parts) of the gain is distributed to the beneficiaries who are intended to be assessed on the capital gain.