Distribution Minutes-Annual Trustee Minutes

Recently, the ATO has been increasing their reviews of how taxpayers have allocated income in discretionary trusts. Failure to comply with the rules may lead to higher-than-anticipated tax liabilities. It is crucial to follow the ATO guidelines carefully to avoid any unintended tax consequences.

What are Annual Distribution Minutes?

Each year, a discretionary trust’s distributable income must be calculated and allocated to beneficiaries in accordance with the trust deed. It is a requirement under trust law that this allocation of income to beneficiaries be determined and documented through trust minutes before the 30th of June.

Subsequent payments of the trust’s profits to beneficiaries, should then be in line with the documented distribution minutes.

What happens if I don’t sign these minutes by 30 June?

Should a distribution minute not be prepared or you are unable able to prove to the ATO a distribution decision was reached prior to 30 June, the trustee may be liable to pay tax on the income at the highest marginal tax rate (47% as at 2023).

The ATO has been increasing the number of trusts they review each year, to ensure taxpayers have been meeting their obligations to distribute the trust income by 30 June each year. Their reviews then typically also include confirmation that payments of the trusts profits to beneficiaries align with the amounts documented in the minutes.

What should you do?

It is essential to calculate the distributable income for trust purposes and determine the entitled beneficiaries in accordance with the trust deed rules. While there is no particular format prescribed by the ATO, it is important to ensure that the trust distribution minutes clearly outline the methodology used to determine each beneficiary’s entitlement. The accuracy of the minutes is crucial, and they should make reference to the trust’s deed.

Do I need to prepare a Trust Distribution every year?

Yes, this must be prepared every year based on the income for that year.

Can I prepare a Trust Distribution myself?

It is possible to prepare the trust distribution minutes yourself, ensuring that the allocations to beneficiaries are appropriate and in compliance with the trust deed and ATO guidelines. Once you have prepared the final version, you need to provide a signed copy to our team at Butler. This will enable us to complete your tax return in accordance with the minutes and ensure that all necessary requirements are met.

Our Recommendation

It is recommended to schedule a tax planning meeting with your tax professional at Butler to discuss trust resolutions for the distribution of net income, especially if there are franked dividends and capital gains involved. It is crucial to address these matters accurately to ensure compliance with the ATO’s regulations and to minimise any potential tax liabilities.