The ATO is paying more and more attention to the ability of Trusts to distribute income to the most tax-advantaged entities.
For example, capital gains are generally better to go to individuals, as they get the 50% capital gains tax discount, whereas franked dividends can go to companies, as they usually have a similar rate of tax.
In addition, the ATO is now requiring that Trust Distribution Resolutions be completed and submitted before 30 June. A Trust must pay out all of its income each financial year, or the Trustee pays tax on the income.
So, suppose a Trustee of a Trust fails to make a resolution to distribute the income of the Trust before the end of the financial year. In that case, the Trustee may be assessed by the Australian Taxation Office (ATO) on the Trust income at the highest marginal tax rate of 47%, rather than the intended beneficiaries being taxed at generally much lower tax rates. Due to the increased ATO audit activity, there has been an increased review by ATO on such compliance items.
Trustees should resolve to distribute the current year’s income on or before financial year-end (30 June) to ensure the beneficiary is presently entitled to trust income. To do this, you will need to:
1. Review your Trust Deed
2. Review your projected income for the year ending 30 June, and
3. Prepare your Trust Distribution Resolution for your Family Trust and execute it as the Trustee.