If you’re a trustee of a family or discretionary trust, you’ve almost certainly heard the term trust distribution resolution. It’s a formal decision on how the trust’s income gets divided among beneficiaries each year.
There are real documentation obligations that come with every distribution. If you don’t get them right before the financial year closes, the tax consequences can be serious and costly.
That’s why this article covers exactly what trustees must document and when. By the end, you’ll have a clear picture of what’s required to stay compliant. Let’s get into it.
What Is a Trust Distribution Resolution?
A trust distribution resolution is a formal, written decision made by a trustee on how the trust’s income gets divided among its beneficiaries for a given tax year. It’s the document that makes beneficiaries entitled to their share of the trust’s earnings, and without it, the ATO steps in with consequences that aren’t pretty.
In a discretionary trust, the appointed trustee holds the power to decide who receives what. That decision must align with the trust deed and stay within the rules set out under trust law. So it’s not purely a free-for-all, even if it feels that way on the surface.
Here’s where it gets serious. If no valid resolution exists by 30 June, the entire net income of the trust estate can be taxed at the highest marginal tax rate. According to the ATO’s trustee resolutions page, that’s a costly outcome most families would rather avoid.
Why Documentation Can’t Wait Until Tax Time
A lot of trustees make the mistake of leaving distribution resolutions until they’re sitting across from their accountant at tax time. By then, it’s too late.
The ATO doesn’t accept backdated paperwork, and poor compliance in this area can hit hard. So, here’s what every trustee needs to know.
The 30 June Deadline and Why It’s Non-Negotiable
The 30 June deadline is the cutoff date for making valid distribution resolutions. Miss it, and the ability to allocate income for that income year is gone for good.
What’s worth knowing is that some trust deeds specifically require resolutions to be made even earlier. If the trust deed specifically requires an earlier date, say 28 June, that’s the deadline trustees must follow. Not 30 June.
What Happens When Resolutions Are Missed or Late
If the cutoff date passes without a valid resolution, the appointed trustee can become personally liable for tax on the full trust income. That means paying tax at the top marginal rate of 47%, plus the Medicare levy.
Those entitled to income also lose their entitlement for that entire annual period. It’s a tough outcome, especially for family members who were counting on a distribution.
Retrospective resolutions won’t fix it either. The ATO simply won’t accept them, full stop.
How the ATO Views Undocumented Distributions
Undocumented distributions are a red flag for the tax office. In these circumstances, the ATO treats the undistributed trust income as belonging to the trustee, taxed at the highest rate of 47%.
Poor record-keeping is also one of the most common triggers for trust audits across Australia. And honestly, it’s an easy thing to avoid with the right habits in place.
A written record of every resolution is the strongest protection a trust manager has when the ATO comes asking questions. Without one, there’s very little to stand on.
What Goes Into a Trust Distribution Resolution Template?
Not all trustees know what a properly prepared resolution actually looks like. As Australian Business Magazine has observed across its coverage of Australian trust law, missing even one key detail can leave the whole document open to challenge.
At a minimum, every trust distribution resolution template should cover the following details clearly and completely.
- Trust and Trustee Details: The full name of the trust and the corporate trustee or individual trustee must appear at the top. This basic information establishes who is resolving and in what capacity, in accordance with the trust deed.
- Beneficiary Allocation: The resolution must name one or more beneficiaries and specify either the actual dollar amount or a specified percentage of trust income each person will receive. Vague allocations won’t hold up well as better evidence in a later dispute.
- Character of Income: Capital gains and franked distributions can’t be lumped in with general trust income. Each must be dealt with separately to ensure relevant beneficiaries are entitled to the right amounts.
- Financial Year Covered: The resolution must clearly state which financial year it applies to. Without this, the document’s validity can be questioned during an ATO review.
- Signature and Date: The appointed trustee or corporate trustee must sign and date the resolution before the deadline. That signature is what turns the document into a written record with real legal weight.
A completed resolution covering all five points gives the trust’s documentation a solid foundation. From there, the focus shifts to understanding the finer details of how income actually gets divided.
Discretionary Trust Distributions: Who Gets to Decide?
In a discretionary trust, the power to distribute trust income sits entirely with the trustee. That’s actually one of the biggest draws of this structure for Australian family trusts. The trust’s controller can choose which family members receive income each year, and in what proportion.
That said, the deed sets the boundaries, and every allocation must fall within them. If a distribution goes to someone outside the family group or beyond the class of eligible recipients, the consequences under trust law can be significant.
Discretionary trust distributions give trustees genuine flexibility when it comes to tax planning. For instance, directing more income toward a family member on a lower marginal rate is a common and legitimate approach. Not every beneficiary needs to receive income in every annual period either.
It’s also worth noting that default beneficiaries play an important role here. If the trustee doesn’t make a valid resolution, the trust deed may direct income toward default beneficiaries automatically.
Corporate trustees handling these decisions carry personal liability for the trust’s compliance obligations too. So getting the resolution right each year goes well beyond a simple administrative task. In reality, it’s a core part of running the trust responsibly and keeping everyone’s tax position in good shape.
Franked Distributions and Capital Gains: Key Considerations for Trustees
Two areas that trip up even experienced trustees are franked distributions and capital gains. Both require careful, separate treatment in the resolution document. Here’s a closer look at what each one involves.
Allocating Capital Gains to the Right Beneficiaries
Trustees can effectively stream capital gains to specific beneficiaries, but only if the trust deed allows it. This is where the concept of being specifically entitled comes in. Without a clear methodology in the resolution, streaming simply won’t hold up.
Generally, directing capital gains toward entitled parties at lower tax rates makes the most sense from a tax standpoint. If the trust held the asset for over 12 months, the 50% CGT discount may also apply, which can significantly reduce the overall tax bill for those recipients.
The allocation must be recorded in the trust’s accounts in its proper character. Lumping it in with general income is a common mistake that creates real headaches come tax return time.
How Franked Distributions Affect a Beneficiary’s Marginal Rate
Franked dividends carry imputation credits that get added to a beneficiary’s assessable income before tax is calculated. So the marginal rate each recipient faces can shift depending on how much they’ve been allocated.
A trust recipient on a low marginal rate may actually receive a refund of those franking credits from the ATO. That’s a genuinely useful outcome when the resolution is structured well. On the flip side, allocating franked distributions to someone on a high marginal rate can wipe out that benefit entirely.
Trustees must document which beneficiary receives which franked amount in the resolution. Leaving this vague creates compliance risks that aren’t worth taking.
Family Trust Election and Its Role in Franked Distributions
A family trust election and its implications for franked distributions are something many trustees overlook entirely. Without a valid election in place, the trust can’t always pass franking credits through to specific trust recipients effectively.
The family trust election essentially locks the trust into distributing within a defined family group. Any distribution outside that group triggers family trust distribution tax, which is a costly outcome to avoid.
That election must be lodged with the ATO before the relevant income year ends. So if it hasn’t been done yet, this is one area where acting ahead of the deadline genuinely pays off.
Beneficiaries Presently Entitled: What the Law Actually Requires
Present entitlement is one of those trust law concepts that sounds simple but carries a lot of weight in practice. A beneficiary is presently entitled to trust income when they have an immediate, legally enforceable right to demand that income from the trustee. It’s not about whether they’ve actually received the cash yet.
The resolution must create this entitlement in a certain way and before the year-end deadline. If it doesn’t, the ATO won’t recognise the beneficiary as entitled to that income year. And that means the tax liability can land back on the trust’s controller instead.
According to the ATO’s trust tax tips page, beneficiaries presently entitled to a share of the income of the trust estate are assessed on the same percentage of net income for tax purposes. So the resolution’s wording directly affects who pays what.
Other beneficiaries, including default beneficiaries, may also become entitled if the trustee fails to act. That outcome often doesn’t align with the trust’s broader tax planning goals. In those cases, the corporate trustee ends up carrying a tax burden that proper documentation could have easily avoided.
The income of the trust and each beneficiary’s entitlement must be recorded clearly in the trust estate’s accounts. Vague or incomplete records leave the trust open to scrutiny, and in a reimbursement agreement situation, the consequences can be even more serious.
Income of the Trust vs Taxable Income: A Common Mix-Up
Many trustees assume that trust income and taxable income are the same figure. In practice, they rarely are. The table below breaks down the core differences between the two.
| Trust Income | Taxable Income | |
| Defined by | The trust deed | Tax law |
| Also known as | Accounting income, distributable income | Net income |
| Used for | Determining present entitlement | Calculating what each beneficiary pays tax on |
| Can differ? | Yes, often significantly | Yes, often significantly |
This distinction trips up a lot of trustees when they’re preparing their trust tax return. The trust deed might define income in a way that includes or excludes certain amounts that tax law treats differently. So the two figures don’t always line up neatly.
For instance, accounting income might include capital gains that aren’t fully recognised under tax law, or exclude amounts that are assessable for tax purposes. That gap between the two is where errors in distribution resolutions tend to creep in.
In some cases, a reimbursement agreement can further complicate how the net income of the trust gets assessed across relevant beneficiaries.
Ready to Get Your Resolutions Right? Start Here
Trust distribution resolutions aren’t something to leave to the last minute. Every year, trustees across Australia face avoidable penalties simply because the paperwork wasn’t in order before the deadline. Good documentation is what keeps a trust running smoothly and its beneficiaries in the best possible tax position.
A simple checklist approach works well here. Review the trust deed, confirm each beneficiary’s allocation, account separately for capital gains and franked distributions, and get everything signed before 30 June. That rhythm, repeated each financial year, builds genuine compliance over time.
If you’d like guidance on trust distribution strategies or need help reviewing your current documentation, feel free to contact us at any time. Getting the resolution right from the start is always easier than fixing it later.
FAQs: Trust Distribution Resolutions Explained
Do All Discretionary Trusts Need a Resolution Every Year?
Yes, in almost all circumstances. If a discretionary trust has income to distribute in a given tax year, a valid resolution is essential. Without one, the trustee becomes liable for tax on the trust profits at the top marginal rate. There are very few exceptions to this rule.
When Exactly Must Beneficiaries Be Presently Entitled?
Beneficiaries must be presently entitled to their share of trust income by 30 June of the relevant income year. The resolution must be made in accordance with the trust deed before that date. Any entitlement created after 30 June won’t be recognised by the ATO for that year.
Can Companies Be Beneficiaries of a Family Trust?
Yes, companies can be beneficiaries of a family trust, provided the trust deed allows it and the company falls within the eligible class of recipients. Trustees must stay compliant with any family trust election in place, as distributing outside the defined family group triggers family trust distribution tax.
What’s the Difference Between a Resolution and a Distribution Minute?
In practice, the two terms are often used interchangeably. A distribution minute is simply the written record of the trustee’s resolution to distribute income. Both documents deal with how the trust distributes income, including franked dividends and capital gains, to its beneficiaries for a given income year.
Disclaimer: This article is for general information only and does not constitute financial, tax, legal, or accounting advice. Everyone’s circumstances are different, and you should seek advice from a qualified accountant, tax adviser, or other professional before making any decisions. Australian Business Magazine (ABMAG) is not responsible for any actions taken based on the information in this article.
