For clients that use a trust within their business and investment structures it is a requirement of the ATO that a trust resolution is prepared before 30 June each year. Trust resolutions are usually documented in writing and are a form of trustee minute of a meeting.
This applies to discretionary trusts (commonly known as family trusts) that have a net income to be distributed to the beneficiaries of the trust.
What do you need to do before 30 June?
You need to work out the net income of the trust and who you want that to go to. Sounds simple, right?
Remember to check the trust deed as this is the trustee’s authority on how net income is distributed to the trust’s beneficiaries.
What is the net income of the trust?
Generally, this is the profit that is left after you take the expenses away from the trust’s income. This can be franked income, capital gains and all other income. Working out each category of income is an important process as the ATO does not allow certain types and amounts of income to be streamed (allocated) to specific beneficiaries. However, once the different categories of net income are worked out these can be distributed by percentage to beneficiaries and this can achieve the outcome that the trustee is looking for. Of course there are always other ways of achieving a desired outcome and that usually requires more planning earlier in the year with your MKG Partners accountant.
What outcomes are trustees looking for?
Firstly, a trustee usually does not want to pay 47% tax. This can result if the trustee does not prepare valid minutes (the resolution in writing) that provides a clear methodology of the net income being allocated to each beneficiary. If the minutes are drafted correctly the outcome that the trustee is looking for is to allocate the net income in such a way that family wealth is protected and income tax payable is minimised.
The drafting of a trust resolution after completing a tax planning session can also assist in ensuring government payments are not reduced, protecting family assets, minimising capital gains and ensuring franked dividends reduce tax or are received as tax refunds.
Does this all sound complicated?
MKG Partners have commonly utilised trusts as part of their clients’ asset protection and tax minimisation strategies for over 30 years. We follow the ATO rules to achieve the best outcome for each client’s own circumstances. The trust minute process can seem complicated though when the correct method is used we can achieve the right outcome for our clients.