No 16: Trustee action required by 30 June 2013

As we approach 30 June 2013, trustees will need to start thinking about the distribution of trust income for the year ending 30 June 2013.

Trustee resolution and timing

For beneficiaries to be presently entitled to trust income, trustees must ensure that a valid resolution is made by 30 June 2013 (or an earlier time if required by the trust deed).

If a valid trustee resolution is not made by the required time, there is a risk that the ATO can deem that no beneficiary is presently entitled to the trust income which will result in the trustee being assessed on the income at the highest marginal tax rate.

Importantly, according to the ATO, a written record will be essential if a Trustee wants to effectively stream capital gains or franked distributions for tax purposes. This is because a beneficiary can only be specifically entitled to franked dividends or capital gains if this entitlement is recorded in writing in the records of the trust either:

– by 30 June for franked dividends, and/or
– by 31 August for capital gains (where the gain in not part of income)

ATO’s spotlight on trusts

In 2012, the ATO withdrew the Commission’s former administrative practice under Taxation Rulings IT 328 and IT 329 of allowing a trustee a two months grace period after year end to put in place a valid trustee resolution.

The ATO then conducted a Trustee Resolution Compliance Project to assess the effectiveness of trustee resolutions for the 2012 income year.

The outcome of the compliance project was that the ATO found 100% of the sample of trustee resolutions complied with the requirement that they be made by 30 June 2012.

The ATO has indicated that it does not intend to conduct another targeted compliance project for the 2013 income year. However the ATO has advised that if a trust is selected for other compliance action, the timing of when the trustee resolution was made will be reviewed to confirm a valid resolution was made by 30 June 2013 (or an earlier time if required by the trust deed).

What this means for you as the trustee

Trustees first need to review their trust deed to determine if there is a clause specifying when a trustee resolution is required to be made.

Trustees then need to review their 2013 likely trust income and determine which beneficiaries will be receiving a distribution from the trust and what portion of the trust’s income each beneficiary will be entitled to and document it in a resolution by 30 June 2013 (or an earlier time if required by the trust deed).

If you have any queries in relation to this matter please contact your Blaze Acumen adviser.