For trustees, beneficiaries, and advisors, year-end trust planning has always been important. This year, it’s even more critical. The ATO has taken a strict stance on trust distribution resolutions, reinforced by recent tribunal decisions, making it clear that resolutions must be finalised and documented before 30 June. Any resolution prepared after this date, even if backdated, will not be accepted. Failing to comply can have serious tax consequences, including distributions defaulting to unintended beneficiaries or being taxed at the highest marginal rate.
What Are Trust Distributions?
Trust distributions are the allocation of trust income to beneficiaries. Each year, trustees must decide how income will be distributed and record this decision in line with the trust deed. Finalising the resolution by 30 June ensures the income is taxed in the hands of the intended beneficiaries rather than at the trustee’s top marginal rate.
The New Ruling You Need to Know
The ATO’s position is clear: resolutions must be signed and documented on or before 30 June. Backdated resolutions prepared after this date are invalid and may result in trust income being taxed at the highest marginal rate. In addition, distributions could default to the trust deed’s default beneficiary, which may not reflect the trustee’s intentions.
This ruling is consistent with the findings in the Goldenville Family Trust case (2025 ARTA 1355), where resolutions were declared invalid due to timing issues and insufficient evidence about the nature of the income.
Why Timing Matters
Trustees cannot leave trust distribution planning until the last minute. If the ATO audits a trust and finds an invalid resolution, income may be assessed as undistributed and taxed at the highest rate, distributions may go to default beneficiaries, and compliance issues may arise if the documentation does not clearly identify the type or amount of income. Meeting with advisors and documenting decisions before 30 June is essential to avoid these risks.
Lessons from the Goldenville Family Trust
The Tribunal in The Trustee for Goldenville Family Trust A/C Xiangming Huang and Commissioner of Taxation found that resolutions prepared after the fact were invalid and there was insufficient evidence that the trust income was correctly characterised. The case highlights the importance of accurate and timely documentation, clear identification of income type, and proper engagement with beneficiaries and advisors before the deadline.
Steps Trustees Should Take
Planning and acting early is key to avoiding compliance issues and ensuring trust distributions are allocated correctly. Trustees should be proactive in reviewing the trust and documenting decisions well before the 30 June deadline. Key steps include:
- Review the trust deed – Confirm the deed allows for the proposed distributions and check default beneficiary clauses.
- Engage advisors early – Meet with accountants or advisors before 30 June.
- Document resolutions correctly – Clearly list beneficiaries, income types, and distribution proportions.
- Maintain evidence – Keep correspondence, meeting notes, or signed resolutions showing the resolution was made on time.
The Value of Professional Advice
Trust law and taxation are complex. With the new ATO ruling, timely and accurate trust distribution resolutions are more important than ever. Seeking professional advice ensures distributions are correctly documented, finalised on time, and defendable in the event of an ATO audit. Proper planning helps trustees avoid unnecessary tax, protect beneficiaries, and comply fully with the law.
Contact the Equil Advisory team to ensure your trust distribution resolutions are finalised and compliant for the next reporting period
