Discretionary trusts — your 3 must do things by 30 June

Resolutions to Distribute Trust Income — must occur by 30 June 2015.

Trustees of discretionary trusts are required to resolve before 30 June of each year which beneficiaries of the trust will receive the income and/or capital of that trust for that year ended 30 June ie to consider which beneficiaries are to be presently entitled at the end of the income year.

This doesn’t mean that the resolutions need to be formally documented before 30 June, however, the Trustee must be ready to show evidence to the Australian Taxation Office (ATO) (if ever questioned by the ATO) that the resolutions were actually made before 30 June (eg a signed and dated ‘map’ of the distributions, a dated notation on a calculation).

What does the resolution need to cover?

The trustee’s resolution or note must include the names of the beneficiaries and the amount or proportion of the income each beneficiary is to receive.

The trust deed should be reviewed to ensure that the trustee’s distribution determination is in accordance with the trust deed, especially in terms of procedure and timing. Also note the obligations for corporate trustees under s251A of the Corporations Act 2001 to document resolutions of the board within 1 month after the resolution was made.

What is the difference between a ‘resolution’ and a ‘minute’?

A ‘resolution’ is a decision of the trustee. A resolution needs to be a conscious act on the part of the trustee to consider and decide on the course of action to be taken. A ‘minute’ is merely a written record of the resolution that has been made by the trustee. A minute can be made, and is usually made, after the resolution has taken place.

When signing minutes, the trustee should not date the minute the date of the resolution, if the minute was made after the date of the resolution. The trustee should date the minutes the date that the minutes were signed.

What is the risk if resolutions are not made by 30 June?

The administrative accommodation provided by the ATO in the past is no more.

Where resolutions have not been made such that no beneficiary is presently entitled to trust income as at 30 June, then the trustee will be taxable on the trust’s taxable income at the top marginal tax rate plus the Medicare levy.

So the 3 Must Do Things you should do by 30 June are:

  • Identify the known unknowns: Practically, the trustees may not know precisely what income they have to distribute by 30 June. Trustees should identify the known unknowns and document the appropriate percentage or fraction of how the different income types will be distributed to the certain beneficiaries.
  • Almost isn’t good enough: read the Trust Deed – Some trust deeds require the trustee to determine the income of the trust and to make a distribution resolution on a date earlier than 30 June, such as 28 June or some earlier date. Also, ensure that the trustee making the resolution is the current trustee of the trust. A resolution by another person (eg a former trustee) will not be valid.
  • Arrange a trustee meeting on or before 30 June to consider trust resolutions: This is particularly relevant if the trustee wishes to stream distributions of franked dividends and capital gains.

See Meyer Vandenberg’s Corporate & Commercial Team for assistance in reviewing your trust deed and drafting valid trust resolutions so that you avoid unintended tax consequences.

For more information contact the Corporate & Commercial Team:

Alice Tay — Partner — Corporate & Commercial Team
(02) 6279 4426
alice.tay@mvlawyers.com.au

Giang To — Senior Lawyer — Corporate & Commercial Team
(02) 6279 4425
giang.to@mvlawyers.com.au