Trustee Resolutions for Discretionary Trusts in Australia: Everything You Need to Know
Introduction
If you operate a discretionary trust or act as a trustee, one of the most important responsibilities you face each year is preparing and executing a trustee resolution. This resolution, done correctly and on time, determines which beneficiaries are entitled to receive trust income and plays a critical role in how that income is taxed.
Yet, despite its importance, many trustees misunderstand or neglect this step, which can lead to significant tax consequences.
In this guide from Trinity Accounting Practice, we explain what a trustee resolution is, why it is essential, when it must be prepared, and how to get it right every year, especially before 30 June.
What Is a Trustee Resolution
A trustee resolution is a formal decision by the trustee (or trustees) of a discretionary trust to distribute the trust's income or capital to specific beneficiaries.
This resolution is necessary to:
- Determine how much income each beneficiary receives
- Establish present entitlement for tax purposes
- Avoid the trustee being taxed on income at the highest marginal rate
Resolutions can be made for distributions of trust income (required annually) and distributions of capital (as needed, often separately documented).
Why Trustee Resolutions Matter
If you fail to prepare a resolution by the correct date:
- The trust income may be taxed in the hands of the trustee at the top marginal rate
- You lose flexibility to distribute to lower-taxed beneficiaries
- It could expose the trust to penalties or scrutiny during an ATO review
In short, a late or incorrect resolution can result in thousands of dollars in avoidable tax.
Who Needs to Prepare a Trustee Resolution
Anyone managing a discretionary trust should prepare resolutions annually. This includes:
- Family trusts
- Investment trusts
- Business or trading trusts
Trustees may include individuals, companies, or a combination. Even if your trust earns minimal income, the resolution must still be completed properly to meet compliance obligations.
When Should Trustee Resolutions Be Made
Resolutions must be completed by the end of the income year, that is, before midnight on 30 June.
However, some trust deeds may specify an earlier date or require the resolution to be made by a specific time. Always check your trust deed.
Importantly:
- You do not need to lodge the resolution with the ATO
- You must have it documented and available upon request
What Must Be Included in a Trustee Resolution
To be valid and enforceable, a trustee resolution should:
- Refer to the trust name
- Be signed and dated
- Specify each beneficiary receiving income
- Clearly outline how much each person will receive, whether by percentage, dollar amount, or formula
- State which income or capital is being distributed
Some trust deeds allow for income to be distributed at the trustee's discretion, while others may have defined terms. Always tailor the resolution according to your deed.
Types of Trustee Resolutions
Income Distribution Resolutions
The most common type and must be done annually. They allocate trust income to beneficiaries based on the trustee's discretion.
Capital Distribution Resolutions
Less frequent. These outline when and how capital, such as assets or property, will be transferred to a beneficiary.
Default Beneficiary Resolutions
Some deeds include default beneficiaries who receive income if the trustee fails to make a valid resolution. However, relying on this is risky and may not produce the tax outcome you intended.
What Is Present Entitlement
For a beneficiary to be taxed on income from a trust, they must be presently entitled to it. This means:
- The beneficiary has a current legal right to demand payment of the income
- The trustee has made a resolution assigning that income to the beneficiary
Without present entitlement, the ATO will consider the trustee liable for tax on that income, often at the top marginal rate of 47%.
Common Mistakes Trustees Make
Many trustees misunderstand or overlook essential steps in the resolution process. These are some of the most common errors:
Failing to Make a Resolution on Time
Even if you intended to distribute, if you did not formally resolve by 30 June, it does not count for tax purposes.
Not Documenting the Resolution
Oral decisions or vague emails do not hold up. You need a clear, signed, dated document.
Distributing to Non-Beneficiaries
You can only distribute to individuals or entities listed as beneficiaries in the trust deed.
Ignoring the Trust Deed
Every deed is different. Some require specific language or formats in the resolution.
Inconsistent Tax Reporting
If the resolution says one thing but the tax return says another, it may raise red flags during a review.
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Case Study: The Cost of a Late Resolution
A family trust earned $150,000 in net income for the year. The trustee intended to distribute $100,000 to the wife (a low income earner) and $50,000 to the son (a university student).
But they forgot to sign the resolution until 3 July.
Because the resolution was made after 30 June, it was invalid for tax purposes. As a result:
- The trustee was taxed on the full $150,000
- At the 47% marginal tax rate, this created a $70,500 tax liability
- No income was taxed in the hands of the beneficiaries at their lower rates
This costly error could have been avoided with a timely resolution and professional support from an experienced tax accountant.
How to Draft a Compliant Trustee Resolution
Step 1: Check the Trust Deed
Confirm who the beneficiaries are, review rules about how and when resolutions must be made, and understand how income is defined in the deed.
Step 2: Estimate the Trust's Income
This includes business profits, investment income, franked dividends, and distributions from other trusts. Estimates are usually based on management accounts or year-end figures. Accurate bookkeeping throughout the year makes this step much easier.
Step 3: Decide on Income Distribution
Assign specific amounts or percentages to each beneficiary. Consider tax efficiency and the income needs of each beneficiary. Avoid overly complex formulas that may lead to disputes or errors.
Step 4: Draft the Resolution
Use clear, precise language. For example: "The Trustee resolves that the net income of the Trust for the year ended 30 June 2025 will be distributed as follows: 60% to Jane Smith, 40% to ABC Pty Ltd."
Step 5: Sign and Date the Resolution
Ensure all trustees (if more than one) sign the document before 30 June. Keep the original in a secure location.
Tax Planning Opportunities with Trust Distributions
Properly executed trustee resolutions open the door for effective tax planning, including:
Streaming Franked Dividends
Where permitted by the trust deed, you can direct franked income to specific beneficiaries, maximising the benefit of franking credits.
Capital Gains Tax Discount Distribution
Distribute CGT discount income to individuals (not companies) to take advantage of the 50% CGT discount.
Income Splitting
Distribute income across family members in lower tax brackets to reduce the overall group tax liability. Our business advisory team can help you model different distribution scenarios to find the most tax-effective approach.
What Happens After the Resolution Is Made
Once the resolution is executed:
- The trust can pay the income to the beneficiaries or retain it until a later date
- Each beneficiary will be taxed on their share of income, even if they have not yet received the cash
- The trust must lodge its tax return consistent with the resolution
Record Keeping Requirements
Even though resolutions do not need to be lodged with the ATO, you must keep:
- Signed resolution documents
- Proof of date, such as email transmission logs or file metadata
- Supporting calculations showing how income was distributed
Records must be kept for at least five years.
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How Trinity Accounting Practice Supports Trustees
As part of our tax planning services, we help trustees across Australia to:
- Review trust deeds for resolution requirements
- Draft fully compliant trustee resolutions
- Estimate taxable income and advise on tax-effective distributions
- Lodge trust tax returns that align with resolutions
- Avoid common errors that trigger ATO attention
We also monitor legislative changes that could impact discretionary trusts and keep you up to date every financial year.
For trusts that need broader strategic financial oversight, our Virtual CFO division, VCFO Australia, provides budgeting, forecasting, and compliance support for growing businesses and not-for-profit organisations.
Frequently Asked Questions
Can I change a resolution after 30 June?
No. Resolutions must be made by the due date and cannot be backdated. Changes afterward are not valid for tax purposes.
Can I distribute to someone not named in the trust deed?
No. Only those named as beneficiaries, either specifically or by class, in the deed can receive income.
Does the ATO check resolutions?
Yes. In audits or reviews, the ATO may request to see your trustee resolution and compare it to your lodged trust return.
Do corporate trustees follow different rules?
The distribution rules are the same, but corporate trustees must ensure resolutions are signed by authorised directors in accordance with company law.
What if I have a hybrid trust or unit trust?
These entities have different distribution and resolution requirements. Contact us for specific guidance.
Conclusion
Trustee resolutions are not a paperwork formality. They are a core tax compliance requirement for discretionary trusts. Failing to act on time or getting it wrong can result in tax at 47% on undistributed income, disallowed deductions or franking credit streaming, and higher audit risk.
By partnering with Trinity Accounting Practice, you gain peace of mind knowing your resolutions are legally sound, tax-effective, and aligned with your trust deed.
If you need finance to support investments or asset acquisitions within your trust structure, our mortgage brokerage division, Nexus Wealth Partners, can assist with lending solutions.
Book your trust review with Trinity Accounting Practice before 30 June.
Trinity Accounting Practice
Accounting Firm in Beverly Hills, Sydney
Phone: 02 9543 6804
Address: 159 Stoney Creek Road, Beverly Hills NSW 2209
Website: www.trinitygroup.com.au
Weekend and after-hours appointments available
Our Virtual CFO division, VCFO Australia, provides strategic financial management, budgeting, forecasting, and compliance support for growing businesses and not-for-profits.
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Disclaimer: Information provided on this website is intended as a general overview only and does not replace professional advice tailored to your personal circumstances.
