The trustee resolution signed in June determined how the trust's income is taxed for that financial year. If it doesn't match the deed, no beneficiary may be validly presently entitled to that income, and the trustee can be assessed on it under section 99A of the Income Tax Assessment Act 1936 (Cth), generally at the top marginal rate. By December, most of the resolutions that were rushed through before 30 June have not been looked at again, and that is exactly the gap worth closing before tax time.
End-of-year cleanup means checking that the June resolution is valid, matches the deed, names the right beneficiaries, and distributes income the deed actually recognises. Each of these is a separate, specific check, and getting one wrong can undo the intended tax outcome for the whole year.
Run a family trust? Contact us to review whether the June resolution holds up.
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Every trust deed defines who can be a beneficiary and how income can be distributed. A resolution that names a person the deed doesn't recognise as a beneficiary, or that distributes a type of income the deed doesn't authorise the trustee to distribute in that way, is not effective, regardless of what the trustee intended when signing it. The deed, not the resolution, sets the outer limits of what can be done.
What Is Section 100A and Why Does It Matter?
Section 100A is a separate anti-avoidance provision from section 99A. It can apply where a beneficiary is presently entitled to trust income but the real economic benefit of that entitlement is enjoyed by someone else, under an arrangement entered into with a purpose of reducing tax. Where section 100A applies, the beneficiary's entitlement is disregarded for tax purposes and the trustee is instead assessed, again generally at the top marginal rate. The ATO has increased its scrutiny of trust distributions under this provision, including common arrangements involving adult children as beneficiaries whose distributions are, in practice, retained or used by the trust or another family member.
Section 99A itself is not automatic. The Commissioner has a discretion under section 99A(3) to decide it would be unreasonable to apply the top marginal rate in a particular case, having regard to matters such as the nature of the trust and how the relevant income arose, in which case the more concessional rates in section 99 may apply instead. Whether an invalid or non-matching resolution actually produces a top-rate outcome, and whether section 99A or section 100A is the more relevant provision on the facts, depends on the specific trust and circumstances and should be checked rather than assumed.
Are the Right Beneficiaries Named?
A resolution needs to correctly identify each beneficiary receiving a distribution, in the terms the deed uses. Informal descriptions, incorrect entity names, or ambiguity about which family member or entity is intended can all cause a resolution to fail, even where the underlying intention was clear to everyone involved.
How Phan Campbell & Associates Can Help
At Phan Campbell & Associates in Footscray, our accounting team reviews trust resolutions against the governing deed for family and business trusts across Melbourne and Victoria, checking validity, beneficiary entitlements, and Section 100A exposure before the trust's tax return is finalised.
A trust holding a family business raises succession questions as well as annual compliance ones. Our guide on passing a business to the next generation covers the legal and tax planning for handing the business on.
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Frequently Asked Questions
1. Why does the June trustee resolution matter so much?
It determines how the trust's income is distributed and taxed. If invalid or incomplete, no beneficiary may be validly presently entitled, and the trustee can be assessed on that income under section 99A, generally at the top marginal rate, subject to the Commissioner's discretion.
2. What does "doesn't match the deed" actually mean?
A resolution that names a person or distributes income in a way the deed doesn't authorise is not effective, regardless of the trustee's intention when it was signed.
3. What is Section 100A and why does it matter here?
A separate anti-avoidance provision from section 99A, applying where a beneficiary is presently entitled to income but someone else enjoys the real economic benefit, under an arrangement aimed at reducing tax, in which case the trustee is assessed instead. The ATO has increased scrutiny under this provision.
4. When should a June resolution be reviewed?
Before the trust's tax return is prepared, ideally as part of an end-of-year cleanup well before the next June's resolution is due, leaving time to fix any problem found.