Action Required for Discretionary Trusts: Resolution to Distribute Income due 30 June 2018

Click here to access instructions and checklist : Resolution-to-distribute-income-trust-minute checklist – 2018

Action Required for Discretionary Trusts: Resolution to Distribute Income
We are reminding you that the Trustee(s) for discretionary trusts must resolve to distribute the income of the trust no later than the 30th June, 2018.   The resolution formally documents in writing the decision of the trustee, determining which beneficiaries will receive the income of the trust and pay tax on it.

Practically, what does this involve?
This will require us (or you may attend to this yourself) to:

  • Understand the terms of your trust deed (as all trusts deeds are different and can have different clauses that can affect the way the distribution is recorded);
  • Understand  the  ATO requirements  to  make  a  valid  resolution  to  distribute  income  of  the  trust  in accordance with the trust deed;
  • Draft an effective trustee resolution or minute;
  • Communicate the income of the trust and the distribution strategy – including if some income (dividends and capital gains) will be streamed to different beneficiaries.

Consequences of not having a valid resolution in place by 30th June.
If a valid resolution distributing the trust’s income is not made by 30 June, any later resolution made will be ineffective resulting in:

  • No opportunity to effectively plan distributions to minimise tax;
  • The trusts default beneficiary is taxed on the income at their marginal rate even if they are not the recipient of the cash;
  • Or if there is no default beneficiary the trustee will be taxed at the top marginal rate (currently 47% including Medicare Levy)

What to do next?
1.   Engage us to attend to the distribution minute on your behalf and complete the checklist (see below).
2.   If you would like to attend to the requirements yourself, please complete an effective and valid resolution to distribute income and provide a copy to us by the 15th June for our records (please note we will not be able to check if the resolution is valid or tax effective if you choose to prepare it yourself)

Please contact us for clarification, or further advice, regarding any of the topics covered in this letter.