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Trust Resolutions and Why They Are Important

Posted 3 May '23

With the end of the tax year just around the corner, it’s time for those with a family or discretionary trust to start thinking about their trust resolutions.

You see, trust resolutions are more than just a piece of paper! They are a crucial record of the trustee’s decisions as to their intent for the income of the trust for the financial year. Don’t let the technical jargon scare you off – we’re here to break it down and explain why trust resolutions are so important.

An important fact to know is that failing to prepare trust resolutions by the 30 June deadline can result in serious tax consequences. So, it’s a good thing you’re thinking about it now!.

As trusted advisors, we want to ensure you are well informed about the importance of trust resolutions and how to properly prepare them. So, whether you’re a new client who’s just established a trust, or a long-time client who’s been using one for years, we’re here to provide valuable insights that can help you navigate the complexities of trust resolutions and ensure compliance with tax laws.

What Are Trust Resolutions?

Simply put, a trust resolution is a document that outlines the decisions made by the trustees of a trust to document their intent with the distribution of the trust income for a financial year.

As you may know, the resolution details which beneficiaries are entitled to receive the income of the trust for that particular financial year. This information is crucial for proper income distribution and compliance with tax laws. Without a tax resolution, the trustee may be required to pay tax at the highest marginal tax rate, which can result in significant financial consequences.

It’s important to note that the ATO takes compliance with trust resolution requirements seriously. Trustees who fail to comply may face unwanted attention from the tax authorities. As such, it’s crucial to ensure that your tax resolution is accurately prepared and documented in a timely manner.

What You Need to Know About Trust Resolutions

Whether or not you need a tax resolution depends on the specific trust deed. Some deeds won’t require a written resolution, but the ATO will want some kind of evidence to support that your decision was made in accordance with the trust deed (which is generally before the end of the financial year).

  • Once you make a resolution to a beneficiary and there’s income to be paid, that beneficiary is entitled to that income. To make sure you’re playing by the ATO’s rules, it’s crucial to document this through a resolution, and more recently, the ATO is looking at whether that income is actually paid and ensuring the beneficiary is explicitly aware of their entitlement to this income.
  • The decisions you make and document in the trust resolution must be followed when preparing the accounts for the trust in that financial year. This is all to ensure that the distribution of income is correctly accounted for and in line with tax laws.
  • One more thing to keep in mind: when you choose to distribute money to a beneficiary of a trust, that beneficiary is entitled to the money. While you don’t have to pay them right away, you should make sure to pay them in a timely manner to avoid any hiccups.

With the help of a qualified advisor, you can strategically choose where to distribute profits to help minimise the tax consequences of the trust profits. This is where careful consideration and planning can pay off by engaging us to complete a tax plan for you! Backed by years of industry experience, we’ll ensure it is completed accurately and in alignment with your best interests.

Leonard Jiang

Written by Leonard Jiang | CA, CTA, DFP

Partner at Empire Accountants

Leonard joined Empire in 2016 and is a fully qualified Chartered Accountant (CA) and Chartered Tax Advisor (CTA). He combines strategic financial planning with a deep passion for financial education, delivering practical, sound advice that helps small business owners confidently turn their sparks into highly scalable realities.

View Professional Profile & Contact Leonard

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