Updated May 2025 

Trusts play a vital role in the Australian tax landscape, offering flexibility, asset protection and tax planning opportunities for business and investment trusts alike. However, to maximise the benefits and ensure compliance with trust and tax laws, trustees must pay careful attention to their trust’s governance, particularly in relation to the preparation of trust distribution resolutions before the end of the financial year. 

In this article, we highlight the importance of properly prepared trust distribution resolutions, and the factors trustees should consider when deciding their distribution plans for the financial year. 

Complying with trust deed requirements 

Trustees are legally obligated to follow the terms outlined in the trust deed. These terms generally stipulate the process and timeframe to adhere to when preparing and executing trust distribution resolutions. 

A crucial step for all trustees is ensuring the correct and appropriate documentation is in place by 30 June each financial year. Failure to do so can result in an invalid or null distribution being transacted, which may result in the default distributions of the relevant deed being applied. In many instances, this creates unfavourable financial and taxation positions as the trust’s income and capital may not end up where they were intended. 

You must prepare and execute your trust distribution resolutions by 30 June to avoid this outcome. 

Trust beneficiary considerations 

Trustees have a fiduciary duty to act in the best interests of all trust beneficiaries. This includes considering each potential beneficiary’s needs, circumstances and tax implications. In some instances, particularly regarding compliance with section 100A provisions (which we mention in more detail below), documenting these considerations may provide valuable evidence to support how the trustee has made decisions. 

Another important factor is confirming that the persons or entities you intend to distribute to are eligible trust beneficiaries and aren’t excluded due to trust deed clauses or for taxation reasons, such as family grouping through family trust elections. 

Determining income and capital for distribution purposes 

The trust deed will generally guide how the trustee must and/or can determine what constitutes income and capital for distribution purposes. Where the trustee intends to distribute ordinary income, franked dividends and capital gains to different beneficiaries, your trust distribution resolutions must clearly distinguish between these categories to ensure distributions end up where intended. 

Section 100A considerations 

The ATO continues to focus on Section 100A compliance, having finalised its guidance during the 2023 financial year. These final rulings provide clearer direction on how the ATO will apply these provisions to trustees preparing trust distribution resolutions. 

What’s clear is that Section 100A has a wider application than previously thought, and trustees should consider its implications when making distribution decisions. 

The Section 100A provisions prevent trustees from manipulating the trust’s distribution resolutions solely for tax purposes. Generally, Section 100A won’t apply where it can be shown that the distributions made by the trustee ’on paper’ to beneficiaries align with the economic benefits those same beneficiaries receive. Where this isn’t the case and it can be shown that the distributions ‘on paper’ have resulted in beneficial tax outcomes, there is risk of Section 100A applying. 

To learn more about Section 100A, please refer to our article, ‘ATO puts Trusts on notice re: their distribution strategies‘. 

Avoiding invalid trust distributions 

Failing to effectively distribute the income of a trust can have significant tax implications. To avoid this, work through each of the factors above and always refer back to your trust deed to confirm you’re following all the required rules for making effective distribution resolutions. 

Best practice for trust distribution resolutions 

While trust distribution resolutions must be made by the end of each financial year, trustees shouldn’t treat this as a simple ‘tick and flick’ exercise. Each year brings different circumstances: 

  • The income or capital of the trust may vary 
  • Beneficiaries may have different needs 
  • The economic benefits from the trust may flow differently.  

What’s clear is that circumstances rarely stay the same, so you should carefully consider your trust distribution resolutions each year. 

Need help with your trust distribution resolutions? 

Preparing effective trust distribution resolutions is usually complex. Seeking guidance from your trusted advisor gives you peace of mind that you’re maximising the benefits of your trust structure while meeting all compliance requirements.  

Please get in touch with our team if you would like assistance with your trust distribution resolutions before the end of financial year deadline. 

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This article was written by Tax and Business Services Director Kylie McEwan.

Disclaimer: This information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.