- A trustee must make beneficiaries presently entitled to trust income by 30 June each year, usually through a written resolution.
- If no valid resolution exists by 30 June, the ATO can assess the trustee at the top marginal rate of 45% plus the 2% Medicare levy.
- Franked distributions must be recorded in writing by 30 June, and capital gains by 31 August, to be streamed effectively.
A trust distribution resolution is the written decision that makes beneficiaries presently entitled to a trust’s income, and it must be in place by the 30 June deadline every financial year. Trustees of a discretionary trust who miss this date risk being assessed on the trust’s income themselves, at the top marginal rate of 45% plus the 2% Medicare levy.
The rule comes from the ATO and applies to every family and discretionary trust in Australia. Getting the timing, wording and records right protects both your beneficiaries and your tax position.
What is a trust distribution resolution, and why does 30 June matter?
A trust distribution resolution is a formal decision by the trustee that allocates the trust’s income to chosen beneficiaries for a financial year. It is the mechanism that makes those beneficiaries presently entitled to the income, so that they, rather than the trustee, are taxed on it.
The 30 June date matters because entitlement must exist by the end of the income year. According to the ATO trustee resolutions checklist, a resolution is only effective for determining who is assessed on the trust’s net income if it is made by 30 June.
Unlike a company, a discretionary trust does not usually pay tax on income it distributes to beneficiaries. The resolution is what directs that income and locks in who carries the tax. Where the deed sets an earlier internal deadline, such as 28 June, that earlier date applies instead.
What is present entitlement, and why must beneficiaries be entitled by 30 June?
Present entitlement means a beneficiary has a vested, indefeasible right to demand payment of their share of trust income as at 30 June. The right cannot be contingent on a future event, and it cannot be capable of being taken away.
The ATO requires this entitlement to exist by year end so that the correct person is taxed on each share of the trust’s net income. If an entitlement only arises after 30 June, or depends on a later adjustment, it will generally fail.
A resolution does not need to state an exact dollar figure. It is effective if it sets a clear method, such as a fixed percentage of income “whatever that turns out to be”, unless the deed demands a specific amount.
TIPYou do not have to finalise the trust accounts by 30 June. A resolution that prescribes a clear calculation method, for example a set percentage of trust income, can create present entitlement before the numbers are finalised.
What happens if you miss the deadline?
Missing the deadline shifts the tax burden onto the trustee. If no beneficiary, including any default beneficiary named in the deed, is presently entitled to trust income at 30 June, the ATO assesses the trustee on the trust’s net income under section 99A of the Income Tax Assessment Act 1936.
That assessment applies the top marginal rate. This is 45% plus the 2% Medicare levy, so almost half of the affected income can be lost to tax that would otherwise have been spread across beneficiaries on lower rates.
| Scenario | Who is assessed | Tax outcome |
|---|---|---|
| Valid resolution made by 30 June | Beneficiaries who are presently entitled | Each beneficiary pays tax at their own marginal rate |
| No valid resolution by 30 June, with a default beneficiary | The default beneficiary | Default beneficiary is taxed on the relevant share |
| No valid resolution by 30 June, no default beneficiary | The trustee, under section 99A | Top marginal rate of 45% plus 2% Medicare levy |
What makes a resolution valid?
A valid resolution is one that is authorised by the deed, made in time, and clear enough to identify each entitlement without ambiguity. The ATO checklist sets out several conditions that trustees should confirm before 30 June.
Work through these points before you sign:
- You hold a complete, current copy of the trust deed, including amendments.
- Each intended beneficiary is within the eligible class and is not an excluded beneficiary.
- The trust has not yet vested, as vesting fixes entitlements to the takers on the vesting date.
- If a family trust election is in force, every recipient sits inside the family group.
- The wording is clear, so there is no gap or overlap between shares of income.
If a resolution appoints income to someone outside the deed’s class, the default beneficiaries or the trustee may be assessed on that share instead. Distributing outside a family group can also trigger family trust distribution tax for the trustee.
How do you stream capital gains and franked distributions?
You stream by making a beneficiary specifically entitled to a capital gain or franked distribution, so its character is preserved in that beneficiary’s hands. The ATO streaming guidance confirms this is available only where the trust deed does not prevent it.
Two recording deadlines apply, and they differ from each other:
- Franked distributions: the beneficiary’s entitlement must be recorded in writing in the trust’s records by 30 June.
- Capital gains: the entitlement must be recorded within two months of year end, that is by 31 August.
Streaming lets beneficiaries apply their own capital losses, use available discounts and, subject to the integrity rules, access franking credits. If you are also managing property disposals, our guide to capital gains tax explains how the discount interacts with trust distributions. Note that a capital gain already dealt with by another beneficiary at 30 June cannot then be streamed after that date.
What records and evidence should you keep?
You should keep a written, dated record of every resolution, even where the deed does not strictly require writing. The ATO treats a written record as the best evidence that a valid resolution existed by 30 June.
Records created after 30 June are accepted as evidence, provided the resolution itself was validly made by that date. The ATO gives the example of a handwritten note dated 29 June that is later typed up on 15 July.
Keep the following on file for each income year:
- The signed resolution or minutes, with the date it was made.
- The trust deed and any variations relied on.
- Written records of specific entitlements to franked distributions and capital gains.
- Tax file numbers quoted by entitled beneficiaries, as TFN withholding rules apply to closely held trusts.
What is your EOFY trustee checklist?
Your end of financial year checklist should move from deed review through to signed, dated minutes before 30 June. Work through the steps below in order each year.
- Locate the current trust deed and confirm any amendments.
- Confirm intended beneficiaries are within the eligible class and not excluded.
- Check the trust has not vested and note any earlier deed deadline.
- Confirm whether a family trust election limits the family group.
- Estimate or calculate the trust’s income for the year.
- Prepare and sign a written resolution before 30 June.
- Record franked distribution entitlements in writing by 30 June.
- Record capital gain entitlements by 31 August.
- Collect tax file numbers from entitled beneficiaries.
- File the signed minutes alongside the deed as evidence.
How Sleek helps you meet your trust deadlines
Sleek pairs you with registered tax agents who prepare compliant resolutions, calculate distributions and keep your records audit ready through our accountant services. Our team also supports secure document handling for trustees through trust security and year round advice from a dedicated tax accountant. That means the 30 June deadline is managed for you, not left to the last week of June.
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Frequently Asked Questions
Does the resolution have to be in writing?
Whether writing is strictly required depends on the terms of your trust deed. A written record is still strongly recommended because it provides the best evidence that a valid resolution was made by 30 June. Writing is essential if you want to stream franked distributions or capital gains, because specific entitlement must be recorded in the trust’s records.
Can I make a resolution after 30 June if I forgot?
A resolution made after 30 June cannot create present entitlement for that income year. If no beneficiary was presently entitled by 30 June, the trustee is assessed on the income. You can, however, tidy up the written record of a resolution that was genuinely made by 30 June.
What happens if my trust has a default beneficiary?
A default beneficiary clause names who becomes entitled to income the trustee has not effectively dealt with by 30 June. Where the clause operates, that default beneficiary is taxed rather than the trustee. If there is no default beneficiary, the trustee is assessed under section 99A at the top rate.
What is a variation of income resolution, and is it safe to use?
It is a resolution that tries to reallocate income if the ATO later adjusts the trust’s net income. The ATO warns in Taxation Determination TD 2012/22 that these resolutions create significant uncertainty and often fail to achieve the intended outcome. The Commissioner may raise alternative assessments across several parties where the legal effect is unclear.
Do beneficiaries need to provide their tax file number?
Entitled beneficiaries of closely held trusts, including family trusts, should quote their tax file number to the trustee. If they do not, TFN withholding rules can require the trustee to withhold amounts from distributions. This is a separate obligation from making the resolution itself.
What does it mean if the trust has vested?
Vesting is the date the trust ends and entitlements become fixed in the beneficiaries entitled to the trust fund. After vesting, a trustee cannot make fresh appointments of income that conflict with those fixed entitlements. Always check the vesting date in the deed before drafting a resolution.
Can other types of income be streamed like capital gains?
Only capital gains and franked distributions can have their tax character streamed to specific beneficiaries. Other income, such as foreign income or interest, is taxed to beneficiaries proportionately across their share of the trust’s net income. You cannot allocate one category of income to a single beneficiary in the way streaming allows.
