What is a Trust Distributions Minute?

Importance of Trust Distributions Minutes

1. Tax Compliance: The ATO requires that trustees make a valid and effective resolution to distribute trust income by 30th June each year. Without this resolution, the trust’s income may be taxed at the highest marginal tax rate.
2. Clear Allocation: It ensures that the trust income is correctly distributed among beneficiaries according to the trust deed and trustees’ decisions.
3. Legal Record: Acts as a legal document that can be referred to in case of disputes or audits by the ATO.

Requirements for Preparing a Trust Distributions Minute

• The name of the trust. 
• The date of the meeting or resolution.
• Details of the income to be distributed.
• The names of the beneficiaries and the respective amounts or proportions of income each will receive.
• Any specific terms or conditions of the distributions.     

Steps to Prepare a Trust Distributions Minute

1. Review the Trust Deed: Check the trust deed for any specific instructions or limitations on income distribution.
2. Determine Distributable Income: Calculate the trust’s net income for the financial year. This may require the preparation of financial statements.
3. Decide on Distributions: Trustees should decide how the income will be distributed among beneficiaries. This decision should consider the tax implications for each beneficiary.
4. Draft the Minute: Prepare the minute with all necessary details, ensuring accuracy and compliance with the trust deed and ATO requirements.
5. Sign and Date: Trustees must sign and date the minute before 30th June.
6. Retain Records: Keep the signed minute in the trust’s records for compliance and future reference.

Consequences of Not Preparing Trust Distributions Minutes

• Undistributed Income: If the trustee does not make a valid resolution by 30th June, the income of the trust for that financial year will be considered undistributed.
• Penal Tax Rates: The Australian Taxation Office (ATO) will tax undistributed income at the highest marginal tax rate (currently 45%), plus the Medicare levy.

• Inefficient Tax Distribution: Without a distribution resolution, trustees lose the ability to distribute income to beneficiaries in the most tax-effective manner, potentially increasing the overall tax burden on the trust’s income.
• Missed Benefits: Opportunities for tax planning, such as distributing income to beneficiaries in lower tax brackets or with tax deductions available, are lost.

• Legal Compliance: Not following the requirements set out in the trust deed for distributing income can be a breach of the trustees’ duties.
• Beneficiary Rights: Beneficiaries may challenge the trustees’ management of the trust, leading to potential legal disputes.

• ATO Scrutiny: Non-compliance can attract increased scrutiny from the ATO, leading to audits and additional compliance requirements.
• Rectification Costs: Trustees may incur additional costs to rectify the situation, including legal and accounting fees. 

• Trustee Reputation: Persistent non-compliance can damage the reputation of the trustees, affecting their credibility and trustworthiness.
• Trust Relationship: The relationship between trustees and beneficiaries may suffer due to perceived mismanagement or negligence.

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