If you are a trustee and you make beneficiaries of a trust entitled to trust income by way of a resolution, it is important you read the following information and execute all written resolutions before 30 June 2012. The new financial year is only a few days away, so every trust should, if they haven’t already, make a resolution as soon as possible.
If you don’t make a resolution before 30 June and no beneficiary (including a default beneficiary) is entitled to trust income as at 30 June, you (the trustee) will be assessed on the trust’s taxable income at the highest marginal tax rate plus the Medicare levy.
When do you have to make your resolutions?
From this financial year (2011-12) the ATO has introduced new regulations in regards to trustee resolutions. This means that all trustees who make beneficiaries entitled to trust income, by way of a resolution, must do so by the end of each financial year. This resolution will determine who is to be assessed on the trust’s taxable income.
If your trust deed requires your resolution to be made at a date before 30 June 2012, you should comply with the requirements of the deed. For example, if the trust deed requires your resolution to be made by 28 June 2012 then you should make your resolution by that date.
What do you need to do?
You need to ensure that any resolution you make to distribute your trust’s income for the 2011-12 financial year is made in accordance with the terms of the trust deed and prior to 30 June 2012. The important thing when executing the resolution is that you must establish, in one or more beneficiaries, a present entitlement to the trust income by 30 June.
Does a resolution have to be in writing?
This will depend on the terms of your trust deed. If your deed does not require a resolution to be in writing, an unwritten decision you make would create a valid entitlement at that time and be effective for tax purposes. However, a written record will provide better evidence of the resolution and avoid a later dispute (for example, with the ATO or with relevant beneficiaries) as to whether any resolution was made by 30 June.
A written record will be essential if you want to effectively stream capital gains or franked distributions for tax purposes. This is because a beneficiary can only be specifically entitled to franked dividends or capital gains if this entitlement is recorded in writing in the records of the trust either:
• by 30 June for franked dividends
• by 31 August for capital gains.
A beneficiary cannot be made specifically entitled to a capital gain included in the income of the trust estate after 30 June if, as a result of the operation of the trust deed, another beneficiary (including a default beneficiary) was presently entitled to it.
If a resolution is made before 30 June and formalised after, will the formal resolution be accepted as evidence?
The ATO will accept official minutes drawn up later as evidence of actions undertaken by you before 30 June to create present entitlement in the beneficiaries by that date.
Do you have to prepare the trust accounts by 30 June to make beneficiaries presently entitled to trust income?
No. Your resolution does not need to specify an actual dollar amount for the resolution to be effective in making a beneficiary presently entitled, unless the trust deed specifically requires it. A resolution is effective if it prescribes a clear methodology for calculating the entitlement. For example, the entitlement can be expressed as a specified percentage of the income – whatever that turns out to be.
Alternatively, if you know that the income of the trust will be at least a certain amount, you may choose to make one or more beneficiaries presently entitled to the certain amount, and other beneficiaries entitled to the balance – whatever that turns out to be.
To find out more information about the deadline for trust streaming for your circumstances please contact our team of experienced Tax Accountants, Tax Agents and Tax Lawyers here at The Quinn Group on 1300 QUINNS (784 667), submit an online enquiry or visit our dedicated website All Trust Structures.