04/06/2015 | Stephen Harvey trust resolution, tax, deadline

June 30 Trust Resolution Deadline Only Days Away

Review now and avoid the pain later

Given the ATO no longer accepts trust resolutions made after June 30, now is the time to read and familiarise yourselves with the contents of your clients’ trust deeds. We don’t want to see you haunted by a missed ATO deadline, or a longer term adverse impact on your clients. Just as critical is the need to ensure any trust resolutions comply with the trust deed and achieve what you intend.

When preparing year end resolutions there are some key principles to keep in mind including:

Open and read the trust deed 

Understand what it permits and does not permit, and take immediate steps to make sure trust resolutions are valid. More practitioners are becoming aware of the need to read trust deeds, and are seeing the benefit of standardised deeds. Unfortunately, however, stories continue to abound of failures in this area, including for example:

  • The Settlor also a named beneficiary. Most modern trust deeds do, of course, specifically exclude the Settlor from being a beneficiary, or obtaining any benefit from the trust. There are good reasons for this – if not excluded, there is a risk that the trustee (not the beneficiary) will pay tax at the highest marginal rate. Not only that, the person who is primarily intended to benefit from the trust will be unable to receive distributions;
  • Distributions were not effective because the documentation to make the distributions didn’t follow the method laid down by the trust deed; or
  • Distributions were made to persons who were not beneficiaries, on the assumption they were. This leads to no effective distribution, and the trustee being assessed at the top rate.

Think about distribution methods 

  • Specific distributions, for example, need to be expressed as a proportion of trust income, or as a proportion of a specific category of income where dollar amounts are not final; and
  • Take extra care where streaming franked dividends or capital gains. The streaming rules are complex and can be difficult to apply.

It’s been a couple of years since the ATO withdrew its practice of accepting resolutions made up to 2 months after 30 June. In that time we have noticed a definite improvement in trust compliance systems, and in firms meeting the June 30 deadline. That said, we still see shortcomings emerging, which can be avoided with a year end review.

Please take the time to review your trust deeds.  Our Discretionary and Unit Trust Checklists are a great tool to assist in this critical step, as well as the Acis Trust Distribution guide and Trust Distribution template

If you have any questions, or are requiring further information, please call us toll-free on 1800 773 477