Annual trust distribution requirements

One of the many requirements of the trustee(s) of a trust is to make an annual distribution resolution, where annual profits are allocated to beneficiaries.

Basically, what this means is that the people responsible for the trust need to decide each year who will be entitled to receive money from the profits of the trust.

Trust distribution resolutions (or “minutes”) are official records or written documentation of the discussions and actions taken by the trustees during a meeting to make decisions on the allocation of trust profits.

The allocation of trust profits is required to be made by the end of the income year (e.g. for the 2024 financial year, date of completion is required by 30 June 2024), unless specified earlier within your trust deed.

If a valid trust distribution is not made by the required date, profits for that trust may be taxed at the highest marginal rates, meaning you will likely be paying significantly more tax than if you had allocated the profits to beneficiaries.

The following should be considered when creating a valid trust distribution.

1. The beneficiary will be entitled to trust income that they have been allocated and by the end of that year, they have a present or immediate right to demand payment from the trustee.
2. Any income allocated to a beneficiary will be deemed as taxable income of the beneficiary and taxed in the beneficiaries’ own tax return.
3. If a family trust election is in place, trust distributions can only be made to individuals/entities within your family group.
4. All beneficiaries’ needs should be genuinely considered when making annual income distribution from your discretionary trust. The Trustee must actively seek information to satisfy themselves of this requirement. This can include immediate & extended family members and estranged spouses & children.
5. Abnormal events that will impact the distributable income of the trust should be considered such as:

• Sale of capital assets
• Large income events
• Large noncapital/capital expenditure.

If you have any questions on the process please feel free to contact us.

Further information can also be found here:

Trustee resolutions | Australian Taxation Office (ato.gov.au)

Owies – is this the end of trustees’ unfettered discretion? — Sladen Legal