Trustee Resolutions: What You Need to Know for June 30
Trustee Resolutions: What You Need to Know for June 30
As a business owner or investor, you are undoubtedly familiar with the many legal and administrative responsibilities that come with running a company and different trust structures. Among these duties, one critical aspect that often requires attention is creating and implementing a trustee resolution.
In this article, we will explore a trustee resolution, its importance for business owners, and why it's critical to complete your trustee resolution by June 30.
What is a trustee resolution?
In Australia, a trustee resolution refers to a formal decision made by the trustees of a trust. Trustee resolutions are crucial for properly administrating a trust and ensuring that the trustees' actions are documented and legally recognised.
As the ATO succinctly defines them, trustee resolutions are "a checklist for trustees who wish to make beneficiaries presently entitled to trust income by way of making resolutions".
Trustee resolutions typically cover important decisions and actions related to the trust, such as distributions of income or capital to beneficiaries, changes in the trust deed, appointment or removal of trustees, investments, and any other significant transactions. These resolutions provide a clear record of the trustees' intentions, decisions, and responsibilities, which can be important for legal and taxation purposes.
Why do I need to complete a trustee resolution by June 30?
By completing trustee resolutions before June 30th, trustees can adequately assess the trust's income, expenses, and capital gains or losses for the financial year. This information is crucial for tax planning, as it allows trustees to distribute income to beneficiaries in a way that minimises tax liabilities and takes advantage of any applicable tax concessions or exemptions. Furthermore, timely completion of trustee resolutions enables trustees to prepare the necessary financial statements, reports, and tax returns required by the ATO.
Overall, completing trustee resolutions by June 30th helps ensure the proper administration of trusts, facilitates accurate financial reporting and enables trustees to fulfil their legal and tax obligations.
What do trustees need to consider before June 30?
Trustees (or directors of a trustee company) must consider and determine the distributions they intend to make by the 30th of June each year, at the latest (though the trust deed may require an earlier deadline). The decisions made by the trustees should be documented in writing, preferably by June 30.
Failure to have valid resolutions in place by the 30th of June each year carries the risk of the trust's taxable income being assessed in the hands of a default beneficiary (if the trust deed allows for it) or the trustee (in which case, the highest marginal tax rate would typically apply).
Before the 30th of June, the following should be taken care of:
- Establishing trustee resolutions to distribute trust income to beneficiaries for the current financial year, at the latest.
- Obtaining Tax File Numbers (TFNs) from beneficiaries (excluding minors, non-residents, and tax-exempt entities) before allocating income to them.
Tax-exempt entities and trust income
When a trustee resolves to distribute income to a tax-exempt entity, the trustee will be assessed on that income at the highest marginal tax rate unless one of the following conditions is met:
- The trustee actually pays the entire distribution within two months of the end of the income year.
- The trustee notifies the entity in writing of its entitlement within two months of the end of the income year.
Additionally, anti-avoidance rules impose taxation on a portion of the income distributed to a tax-exempt entity if there is a discrepancy between the entity's net financial benefit and the tax treatment of the distribution.
TFN withholding
Trustees of closely held trusts, such as discretionary trusts, must withhold tax from distributions to beneficiaries who are yet to provide their Tax File Number (TFN) to the trustee. This rule applies to most types of beneficiaries, except those under a legal disability (e.g., minors), non-residents for tax purposes, or exempt entities (e.g., deductible gift recipients, etc.).
When a beneficiary provides their TFN and other relevant details to a trust, the trustee must lodge a TFN report for that quarter with the Australian Taxation Office (ATO). TFN reports are due by the last day of the month following the end of the quarter. A beneficiary's TFN only needs to be reported to the ATO once, and if there are no new TFNs to report for a quarter, it is not necessary to lodge a TFN report.
If a beneficiary has not provided their TFN to the trustee at the time of distribution, the trustee is obligated to withhold tax from the distribution at the highest marginal rate plus the Medicare levy.
Streaming of Franked Dividends and Capital Gains
For tax purposes, trustees can only allocate franked dividends (and their associated franking credits) to a specific beneficiary if the beneficiary's entitlement to these dividends is documented in writing by the 30th of June. Similarly, in order for the streaming of capital gains to be effective for tax purposes, the beneficiary's entitlement must be recorded in writing by the 30th of June if the capital gains form part of the trust's income for the year, or by the 31st of August if the capital gains do not form part of the trust's income.
Verification of trust vesting on the trust deed
Refer to the trust deed to confirm whether the trust has already vested. If it has, the income entitlements will have vested in the beneficiaries entitled to the trust fund on the vesting date. Attempted appointments of income or capital that contradict these entitlements will be ineffective.
Who can help prepare trustee resolutions?
A business accountant can assist in preparing trustee resolutions by providing expertise in financial matters and ensuring compliance with legal and regulatory requirements. They can review the financial records and transactions of the trust, analyse the financial implications of proposed resolutions, and offer guidance on tax implications and asset management strategies.
As experienced business accountants, Bonerath & Co. can also help draft resolutions, ensuring they are accurate, comprehensive, and align with the objectives of the trust. By leveraging our financial acumen and knowledge of trust laws, we aid trustees and business owners to make informed decisions, maintain transparency, and ensure that your EOFY obligations are met with confidence.
Contact the team today to gain assistance and insight to your trustee resolution and all end-of-financial-year matters.
