Trust Distribution Resolutions: Why 30 June Matters
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Primary tax-year context: Current Australian tax settings
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General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.
Trust distribution resolutions are one of the most consequential decisions a trustee makes each year — yet they are also one of the most commonly left to the last minute. Missing the 30 June deadline, or getting the documentation wrong, can push the tax liability on the trust’s entire net income to the highest marginal rate.
How trust taxation works
Under Division 6 of the Income Tax Assessment Act 1936, a beneficiary who is presently entitled to trust income at the end of the income year is assessed on their proportionate share of the trust’s net income. Present entitlement means the beneficiary has an immediate right to demand payment — it is created by the trustee’s resolution, not by actual payment.
If a beneficiary is presently entitled to a distribution, they are taxed on their share regardless of whether they have received cash. The trust itself is generally not a separate taxpayer on distributed income; the tax flows through to the beneficiaries.
The 30 June deadline
The trustee must resolve how the trust’s income is distributed by 30 June of the income year. This is not an administrative formality. The law ties present entitlement — and therefore the identity of the taxpayer — to the state of affairs at year end.
A resolution made on 1 July is one day late. It creates present entitlement in the next income year, not the prior year. The prior year’s income would then have no entitled beneficiary at 30 June, triggering trustee assessment at the default rate.
The ATO has confirmed that records documenting the resolution can be created after 30 June — for example, minutes written up after the fact — but the decision itself must have been made by 30 June. If the trustee cannot demonstrate that a decision existed before year end, the resolution will be treated as made after 30 June.
What happens if no beneficiary is presently entitled
Where the trust has net income to which no beneficiary is presently entitled at 30 June, the trustee is assessed on that income under section 99 or section 99A of the ITAA 1936.
Section 99 applies where the ATO is satisfied the trust is not a tax avoidance arrangement — the income is then assessed at general individual rates.
Section 99A is the default and applies in all other cases. The rate is 47% (45% top marginal rate + 2% Medicare levy). There is no tax-free threshold, no low income offsets, and no deductions available to offset it. This is the same rate that applies to undistributed trust income in tax avoidance arrangements.
Leaving a distribution resolution undone is therefore functionally equivalent to choosing the highest possible tax rate on the trust’s income.
Who the trustee can distribute to
A trustee can generally distribute to any eligible beneficiary named in (or determined under) the trust deed. The tax outcome depends on who receives the distribution:
| Beneficiary type | Effective tax rate (approximate) |
|---|---|
| Adult individual (low income) | 0–19% |
| Adult individual (high income) | Up to 47% |
| Company beneficiary | 25–30% (base rate or general rate) |
| Another trust | Depends on that trust’s distributions |
| Minor (under 18) | Penalty rates under Division 6AA: up to 47% on amounts above $416 |
Distributing to a corporate beneficiary is a common strategy to cap the tax rate at 30% (or 25% for base rate entities), retaining earnings in the company for future use or paying them out as franked dividends later.
Streaming income to specific beneficiaries
Under Subdivision 207-B of the ITAA 1997, trustees can stream specific classes of income — particularly capital gains and franked dividends — to specific beneficiaries who can best use those income types.
For example, a beneficiary with capital losses may benefit most from a capital gain stream. A beneficiary with a low marginal rate may get no benefit from franking credits, while a company or individual on a higher rate can use them. Streaming allows the trustee to match income characters to beneficiaries efficiently.
Streaming must be:
- clearly documented in the resolution
- consistent with the trust deed’s streaming powers
- supported by separate records identifying the specific amounts attributed to each beneficiary
A generic percentage-split resolution does not constitute a valid streaming election. If the trustee intends to stream, the resolution must name the income class and the specific beneficiary.
Section 100A: the anti-avoidance risk
Section 100A of the ITAA 1936 can apply where a beneficiary is made presently entitled to trust income but the economic benefit is enjoyed by another person under a reimbursement arrangement. When section 100A applies, the present entitlement is disregarded and the trustee is assessed under section 99A.
In practice, section 100A is most relevant when:
- an adult beneficiary is entitled to income but the cash goes elsewhere (e.g., to a related person)
- a low-tax beneficiary is used to reduce the group’s tax liability but doesn’t genuinely receive the funds for their own use
- circular arrangements run trust distributions through companies and back to related parties
The ATO has released practical guidance on its compliance approach to section 100A (TA 2022/1 and TR 2022/4). The key principle is that the arrangement must be entered into in the ordinary course of family or commercial dealings. Genuine distributions to family members who use the funds for personal purposes are generally not at risk. Paper distributions with no genuine economic transfer are.
Distributing to minors
Distributions to beneficiaries under 18 are subject to the penalty tax rules in Division 6AA. Trust income distributed to a minor above $416 is taxed at penalty rates — effectively 47% on the excess above $1,307. This makes distributions to children a tax trap unless the income qualifies as excepted income (for example, income from a deceased estate or genuine employment income).
Practical checklist
Before 30 June each year:
- Review the trust deed: confirm who is eligible to benefit and whether there are income streaming powers
- Determine the trust’s estimated net income for the year (requires an estimate of deductions and timing items)
- Decide the distribution — percentages or amounts — to each beneficiary
- Consider whether to stream capital gains or franked dividends to specific beneficiaries
- Check whether any proposed beneficiary is a minor (Division 6AA applies)
- Review whether any proposed distribution could trigger section 100A concerns
- Document the resolution in writing: trustee meeting minutes, signed by the trustee(s)
- Record the date of the resolution clearly on the document (must be on or before 30 June)
After 30 June:
- Prepare distribution statements for each beneficiary
- Reconcile actual net income to estimated net income used in the resolution
- If there is a variance, consider whether a supplementary resolution or amendment is permissible under the trust deed
Key dates
| Event | Deadline |
|---|---|
| Trustee resolution must be made | By 30 June |
| Minutes may be written up (as evidence) | After 30 June is acceptable |
| Trust tax return lodgment | Follows normal lodgment schedule (October for agents) |
| Distribution statements to beneficiaries | Before they lodge their own returns |