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Trustee Resolutions for Discretionary Trusts in Australia: Everything You Need to Know

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If you operate a discretionary trust or act as a trustee, one of the most important responsibilities you’ll 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.

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Yet, despite its importance, many trustees misunderstand or neglect this step, which can lead to significant tax consequences.

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In this comprehensive guide from Trinity Accounting Practice, we explain what a trustee resolution is, why it's essential, when it must be prepared, and how to get it right every year—especially before 30 June.

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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)
• Distributions of capital (as needed, often separately documented)

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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 audit

In short, a late or incorrect resolution can result in thousands of dollars in avoidable tax.

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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.

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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, but
• You must have it documented and available upon request

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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—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.

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Types of Trustee Resolutions

1. Income Distribution Resolutions

The most common and must be done annually. They allocate trust income to beneficiaries based on the trustee’s discretion.

2. Capital Distribution Resolutions

Less frequent. These outline when and how capital (e.g. assets, property) will be transferred to a beneficiary.

3. Default Beneficiary Resolutions

Some deeds include default beneficiaries who receive income if the trustee fails to make a valid resolution. But relying on this is risky.

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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.

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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 didn't formally resolve by 30 June, it doesn’t count.

❌ Not Documenting the Resolution

Oral decisions or vague emails don’t 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.

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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 (low income earner) and $50,000 to the son (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 47% marginal tax rate = $70,500 tax liability
• No income was taxed in the hands of the beneficiaries

This costly error could have been avoided with a timely resolution and professional support.

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How to Draft a Compliant Trustee Resolution

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Step 1: Check the Trust Deed

• Confirm who the beneficiaries are
• Review rules about how and when resolutions must be made
• Understand how “income” is defined in the deed

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Step 2: Estimate the Trust’s Income

This includes:

• Business profits
• Investment income
• Franked dividends
• Distributions from other trusts

This is usually based on management accounts or year-end estimates.

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Step 3: Decide on Income Distribution

• Assign specific amounts or percentages to each beneficiary
• Consider tax efficiency and income needs
• Avoid overly complex formulas that may lead to disputes

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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."

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Step 5: Sign and Date the Resolution

Ensure all trustees (if more than one) sign the document before 30 June.

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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 franking credits.

✔️ Capital Gains Tax (CGT) Discount Distribution

Distribute CGT discount income to individuals (not companies) to take advantage of the 50% discount.

✔️ Income Splitting

Distribute income across family members in lower tax brackets to reduce overall group tax.

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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 later
• Each beneficiary will be taxed on their share of income—even if they haven’t received it yet
• The trust must lodge its tax return, consistent with the resolution

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Record Keeping Requirements

Even though resolutions don’t need to be lodged with the ATO, you must keep:

• Signed resolution documents
• Proof of date (e.g. email transmission logs or file metadata)
• Supporting calculations showing how income was distributed

Records must be kept for at least 5 years.

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Trinity Accounting Practice: How We Support 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

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We also monitor legislative changes that could impact discretionary trusts and keep you up to date every financial year.

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Frequently Asked Questions (FAQs)

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 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.

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Final Thoughts: Get It Right Every Year

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
• 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.

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Book Your Trust Review Before June 30

👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au
📅 Weekend & after-hours appointments available!
📅 Booking Link: https://calendly.com/ramy-hanna

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