Six days to 30 June.
If you act for a discretionary trust, the year-end distribution resolution is the one job that cannot wait and cannot be fixed afterwards.
Present entitlement is set at midnight on 30 June. Miss the deadline in the deed and one of two things happens. The default beneficiaries take the income, often not who anyone intended. Or no one is presently entitled and the trustee is taxed on the whole of the net income at the top marginal rate under section 99A. A disclaimer in July does not undo it. The High Court shut that door in Carter.
A few things worth checking this week.
First, read the deed for the actual deadline. Some require the resolution before 30 June, a few earlier. The 30 June assumption is often wrong.
Second, confirm the trust has not vested. Once it passes its vesting date, the power to distribute can be gone and the income may already belong to the takers on vesting.
Third, give real and genuine consideration to each beneficiary. After Owies, a resolution that does not can be set aside.
Fourth, reconcile trust income with taxable income and get the streaming right. Franked distribution entitlements must be recorded by 30 June, capital gains within two months.
Fifth, if an entitlement is going to stay unpaid, work through section 100A and Division 7A before you commit. An unpaid entitlement to a bucket company, or a distribution where someone else enjoys the money, is exactly where those provisions bite.
None of this is hard with a week up your sleeve. It is a very different exercise at 4pm on 30 June.
The paper behind this note is on the publications page.
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.