The Commonwealth Government has announced significant additional
funding for the ATO to investigate and pursue trusts. It has never
been more critical that distribution resolutions comply with the
legislation, the terms of the trust deed and the ATO's
Six key things you need to consider when preparing trust
Check the trust deed
How is trust income defined? The ATO has outlined its opinions
on this issue in draft ruling TR 2012/D1.
Can the trustee choose another concept of trust income and if
so, should it?
How does the trustee make decisions and what date are they to be
Make sure that the proposed beneficiaries are included
under the deed
Check whether the beneficiaries are actually eligible
beneficiaries under the deed, particularly related companies,
trusts and de facto spouses as these are often not included in
If streaming capital gains, you must distribute the
gross capital gain
If streaming capital gains, both the assessable and
non-assessable components of the capital gain (after applying
capital losses) must be distributed.
How you achieve this will depend on the terms of the deed and it
may require that the trustee makes an interim capital distribution
in addition to the income distribution.
If streaming franked dividends, the beneficiary must be
specifically entitled to the 'net financial benefit' of the
This means any expenses referable to the dividend (such as
interest on a loan to acquire shares) must be deducted from the
dividend to determine whether it can be streamed.
Also, it is not possible to separately distribute the franking
credits as the franking credits do not form part of the trust
Be cautious about having trustee meetings and consider
recording trust resolutions instead
Trustee resolutions are commonly prepared as minutes of a
meeting. However, it is preferable to prepare a resolution that is
signed by all trustees/directors rather than minutes, as this
avoids any potential arguments with the ATO as to whether the
meeting actually took place.
A resolution can usually be signed in counterparts and exchanged
by email or fax.
The ATO's position is that trustee resolutions must be
completed by 30 June.
While the ATO position may be questionable, the prudent approach
is to ensure that resolutions are recorded before 30 June or
earlier if your deed says so, to avoid any potential disputes.
Cooper Grace Ward's experienced tax and revenue team can
help you navigate the distribution resolution minefield and assist
with drafting distribution resolutions. Contact one of our team
members to find out more.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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