As the end of the financial year approaches, it is essential for trustees of trusts to carefully assess their trust distributions. Failure to make timely decisions regarding income distribution before 30 June can have significant tax implications, potentially resulting in a hefty 45% tax on profits. In this blog post, we’ll discuss the importance of trustee resolutions, the impact on franking credits, the streaming of capital gains, and the need for compliance with increased scrutiny from the Australian Taxation Office (ATO).
- Trustee Resolutions and Income Distribution: To avoid undesirable tax consequences, trustees must consider and decide how the trust’s income for the 2023 financial year will be distributed. These decisions need to be recorded in trustee resolutions before the deadline. Failing to do so may result in adverse tax implications for the trust.
- The Significance of Franking Credits: If the trustee wants to ensure that specific beneficiaries receive the full benefits of any dividends with franking credits attached, this decision must be documented by 30 June. Failure to do so could lead to the intended beneficiaries missing out on valuable franking credits. Proper documentation and adherence to timelines are crucial to maximize the benefits of franking credits.
- Streaming of Capital Gains: Similar to franking credits, the streaming of capital gains requires careful consideration and documentation. Trustees should evaluate whether specific beneficiaries should receive the benefits of capital gains and ensure these decisions are recorded within the trust resolutions.
- Importance of Compliance and ATO Focus: It is considered good practice for all trust clients to address trust distribution issues by 30 June each year and document their trust resolutions accordingly. Additionally, it’s worth noting that the ATO has increased its focus on timely trust distributions. Ensuring compliance with regulatory requirements not only avoids penalties but also demonstrates a commitment to good governance.
As the financial year draws to a close, trustees of trusts need to prioritize decisions regarding trust distributions. It is essential to document trustee resolutions before 30 June to avoid potential tax implications, especially concerning franking credits and the streaming of capital gains. Compliance with regulatory requirements and the increased ATO focus on timely distributions should be a priority for all trust clients.
If you require assistance or have complex affairs that need proper documentation, our team at Tax Store Mackay is here to help. Book a meeting with Tax Store Mackay to discuss your trust’s specific requirements and ensure compliance with trust distribution regulations.
Stay proactive and ensure your trust operates within the boundaries of the law and best practices!
