Trust distributions: what you need to know

30 June 2023 is fast approaching, which means trust distribution resolutions are due soon. For groups with a trust, it’s important to understand how to meet your obligations and optimise the tax position for your trust.

With Section 100A being a hot topic this year and the ATO’s recently released guidance (PCG 2022/2), it is also particularly important to review its impact on your trust distributions. This includes potential risks – for example, where the income of a trust is allocated to a beneficiary while the economic benefit is provided to another party, i.e. making trust distributions to adult children but the cash goes to the trustees (parents).

Even if you don’t have a trust in your group, so aren’t required to take action, you may still like to read through this information for future reference.

Group structures with a trust – Actions to take

If you have a trust in your group that generates any income, including capital gains, Trust Distribution Resolutions must be prepared and signed before 30 June. Any resolutions prepared, or changes made post 30 June, will be ineffective and may give rise to unintended consequences such as:

• The Trustee being assessed on all income at the highest marginal tax rate of 47%
• Under some trust deeds, the default beneficiaries of the trust, rather than the intended beneficiaries, will be taxed on all income at their marginal tax rates.

Optimising your tax position

To ensure you have the most effective Trust Distribution Resolutions, a tax planning meeting is essential prior to year-end. The benefits of being proactive are that you will:

• Avoid paying 47% tax on all trust incomes
• Avoid triggering unfranked dividends (taxed at top tax rate with no franking credit offset) for Division 7A loans from trust Unpaid Present Entitlement
• Achieve substantial tax savings within your family group
• Ensure your business is operated under the most tax efficient structure
• Maximise eligible deductions
• Take advantage of potential tax concessions
• Explore opportunities under the new Federal Budget
• Estimate tax liabilities and plan for cashflow.

When to take action

We recommend the following timeline of actions in regard to trust distributions.

How we can help

Our team can prepare your trust resolution and assist with tax planning and tax strategies. To discuss the needs of your group or for further assistance, please contact us.