Trust distributions and trustee resolutions before 30 June

A discretionary trust only works if the trustee actually exercises the discretion — in time, in the right form, and in favour of people the deed allows. Get that wrong and the tax lands on the trustee at the top rate. Here is what has to happen before 30 June, the traps the ATO is watching, and where the proposed 30% minimum tax currently stands.

Why a resolution is needed by 30 June

Beneficiaries are taxed on a trust's net income according to the share of trust income they are presently entitled to at the end of the income year. The ATO's position is that a resolution making beneficiaries entitled is only effective for determining who is assessed if it is made by 30 June. Many deeds set an earlier date — 28 June is common — and where the deed does, the deed wins. The entitlement must also be vested, not contingent on something that happens later, which is why "variation of income" resolutions that try to redirect any future ATO adjustment to a company beneficiary create more uncertainty than they remove.

There is no standard form. The ATO declines to provide one because deeds vary so widely. The essentials are: read the deed, confirm the intended recipients are beneficiaries and not excluded, check the trust has not vested, and record the decision. The deed decides whether the resolution must be in writing; the ATO says a written record is the best evidence and is essential for streaming.

What happens with no valid resolution

If no beneficiary is validly made presently entitled, the deed's default beneficiaries (if any) may be assessed on the trust's net income. If there are none, the trustee is assessed under section 99A at the top marginal rate. For 2026–27 the top rate is 45% on income over $190,000, plus the 2% Medicare levy — effectively 47% on the lot, with no tax-free threshold. The same result follows if income is appointed in error to someone who is not a beneficiary. The ATO's example on its resolutions page involves an understated $20,000 of business income and shows how quickly a muddled resolution can end in alternative assessments to the beneficiary, the default beneficiary and the trustee.

Streaming capital gains and franked dividends

A trustee can direct a capital gain or a franked dividend, with its franking credit, to a particular beneficiary rather than spreading it in proportion to income. To do so the beneficiary must be specifically entitled, and that entitlement must be recorded in writing in the trust's records by 30 June for franked distributions and by 31 August for capital gains. The deed must permit it. Where a capital gain is to be streamed by appointing trust capital, the same 31 August window applies. A resolution that simply distributes "the income" without dealing with interest the trust also earned can leave that interest to the default clause — read the whole deed before you sign.

Section 100A and the ATO's risk zones

Section 100A is an anti-avoidance rule aimed at reimbursement agreements: arrangements where a beneficiary is made presently entitled to trust income, someone other than that beneficiary gets the benefit, and at least one party had a purpose of reducing tax. If it applies, the beneficiary's entitlement is disregarded and the trustee is taxed on that income at the top marginal rate. It does not apply where the beneficiary simply receives and uses their entitlement, where the arrangement is an ordinary family or commercial dealing, or where the beneficiary is under 18 or under a legal disability.

The ATO's compliance approach is in PCG 2022/2, which sorts arrangements into zones. At a high level: a white zone for arrangements in income years that ended before 01-07-2014, which the ATO will not devote new resources to; a green zone of low-risk arrangements consistent with ordinary family dealing — a couple distributing to each other and paying the household bills, an adult child whose entitlement repays a loan from a parent that bought their own car; and a red zone of high-risk features the ATO will examine as a priority, such as distributing to an unrelated loss company that is paid a fraction of its entitlement while the trustee lends the balance back to the family. Red zone does not mean section 100A automatically applies, and green zone is not a safe harbour in law, but the zones tell you where the ATO will look.

Distributions to minors

Division 6AA taxes a minor's "eligible" income — trust distributions included — at special rates designed to stop income being parked with children. For a resident minor who is not an excepted person, income that is not excepted income is taxed at nil up to $416, then 66% of the excess up to $1,307, and 45% of the entire amount above that. Excepted income, such as the child's own wages or income from a testamentary trust, is taxed at adult rates. Distributing small amounts to children is still done, but beyond $416 the arithmetic stops working.

Family trust elections and the family group

A family trust election names a specified individual and confines the trust's distributions to that person's family group — members of the specified individual's family as the law defines it, certain former family members, other family trusts with the same specified individual, and entities that have made an interposed entity election. In return the trust gains access to concessions, notably under the trust loss rules and the holding period rules for franking credits. The cost is family trust distribution tax at the top marginal rate, payable by the trustee, on any distribution outside the group. The specified individual can be varied only once and only in limited circumstances, and the ATO has warned that FTDT problems are rising as businesses pass between generations. Check the election every year before resolving.

The announced 30% minimum tax from 1 July 2028

On 12-05-2026, as part of the 2026–27 Federal Budget, the government announced a 30% minimum tax on discretionary trusts to apply from 01-07-2028. According to the ATO's page the tax would be levied at the trustee level, with non-corporate beneficiaries who are presently entitled able to claim a non-refundable credit for the tax the trustee paid. A three-year restructure rollover is proposed from 01-07-2027 to help move assets out of discretionary trusts. Treasury released exposure draft legislation for consultation between 03-09-2026 and 18-09-2026. This measure is announced, not law. The ATO says so in plain terms, and the detail — including the exceptions the Budget flagged — can change before a bill passes. We are not recommending anyone restructure on the strength of an announcement; we are flagging that 2027–28 may be the last year under the current rules and that the conversation should start early.

What SMT does

In May and June we prepare an estimate of each trust's income, confirm the deed's resolution date and the beneficiary class, review any family trust election, model the distribution against the beneficiaries' other income and against the 100A zones, and draft the resolution for the trustee to sign before the deadline — with streaming recorded where the deed allows it. Trusts with a corporate beneficiary also get a Division 7A check. This is part of our business and company tax service and the tax planning work we do before year end.

Sources

• ATO — Trustee resolutions
• ATO — Tax rates: Australian resident
• ATO — Trust taxation: reimbursement agreement (section 100A)
• ATO — PCG 2022/2 Section 100A reimbursement agreements: ATO compliance approach
• ATO — Tax rates if you're under 18 years old
• ATO — Family trusts
• ATO — Tax reform: introducing a minimum tax on discretionary trusts (not yet law)
• Treasury — Budget 2026–27 tax system changes