As 30 June approaches, we would like to take this opportunity to remind trustees of annual tax issues to consider.
It is vital that a Trustee of a trust, particularly a discretionary trust make a valid trust resolution to distribute income before 30 June each year.
Each trust will have different requirements and resolutions to be made prior to or by 30 June.
Every Trust Deed is different. Valid trust distribution minutes must provide clear methodology of the determination of each beneficiary’s entitlement. Therefore, it is important that the minutes are prepared accurately and with reference to your trust. It cannot be stressed enough, read your deed.
Distributable income of a trust should be calculated prior to 30 June, and signed trust minutes of the trustee’s resolution are required. Errors can be costly and result in the default beneficiary being taxed or the Trustee taxed at the highest marginal rate (45% + medicare levy).
Particularly where capital gains and franked dividends are involved we strongly recommend the preparation of interim financial statements in order to assist the Trustee/s in drafting the desired resolution.
Trustees of closely held trusts are required to withhold tax from distributions made to beneficiaries who have not provided their TFN to the trustee before a distribution is made. Reporting obligations also arise.
Trusts created during 2020/2021 or trusts with new beneficiaries (such as a new spouse, child who turned 18 or newly created corporate beneficiary) should report this information in a TFN Report to the ATO by 31 July. If a beneficiary does not provide their TFN before a distribution occurs, the Trustee must withhold at the highest marginal tax rate and pay the withheld amount to the ATO whilst lodging an annual report with the details of all withheld amounts.
If you have any queries, please do not hesitate to contact us on firstname.lastname@example.org we will be more than happy to assist.
Cheers and we hope you had a great financial year!
Paul and Helder
Paul Griffiths is a Chartered Accountant with over 20 years assisting Australian Small Businesses with income tax, succession and tax planning matters.