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.

trust distribution resolution

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.

What we are doing to help you.

With the evolving changes to the tax law and how the ATO regulates things, we have found that preparing a trust distribution resolution before the end of the financial year can be pretty complex.  The result is that many clients need help to comply with the trust taxation laws and to be tax efficient.

The work involved and the steps we usually undertake on behalf of clients include:

  • Review of your prior year’s Trust Distribution Resolution – we may have this on file already.
  • Confirmation with you of the estimated Trust income of your Trust for the year ended 30 June.
    (If you use accounting software such as Xero, MYOB or QBO, we can log in and check this for you.)
  • Review your Trust Deed to ensure that the income definition and distribution clauses in your Trust Deed allow for the Trust Distribution Resolution devised for you.
    (We usually recommend that it is updated if your deed is more than four years old.)
  • Advise you on the most tax-effective distribution of this estimated Trust income.
    (Typically an additional project as it includes a separate Tax Planning Meeting or Report).
  • Preparation of Trust Distribution Resolution and ensuring the Trustees sign it before the 30 June deadline.
Benefits and value to you.

Continual changes to trust taxation laws add complexities to the annual year-end compliance for Trust entities.

Trust Distribution workflowSo by having AustAsia prepare and organise for you to sign the Trust Distribution Resolution for each of your Discretionary Trusts before 30 June:

  • Your Trust will not be assessed 47% tax on your Trust profits
  • Instead, your intended beneficiaries will pay tax at their lower tax rates.
  • Ensures the Trust remains compliant with the requirements of the Australian Taxation Office.
    (Failure to do so may result in additional tax for the trustee and/or beneficiaries.)
  • Covers off any variation in the future income of the Trust.
  • Ensures the trustees are aware of their requirements concerning calculating and distributing the Trust’s net income.

While we usually review the income and most tax-effective way to distribute income when finalising your tax returns, now the ATO is telling us this needs to be compleated before 30 June each year.

 

By completing the work now, we minimise any adverse impact should the ATO decide to conduct a review.

Fees

Our price for this work can start from $250 + GST for each Trust but can increase due to complexity.
This excludes any potential Trust Deed upgrade required for $500+GST for each Trust.