Tax Planning Australia: Part 3 - Trust Distributions And Getting It Right Before 30 June

Future Accounting
1 day ago
4 min read

This is Part 3 of our tax planning series, where we explore the key things to consider before 30 June.

In Part 2, we explored how the right structure can support long-term wealth creation and tax efficiency. In Part 3, we focus on trusts—one of the most commonly used structures in tax planning in Australia—and the critical importance of getting distributions right before 30 June.

What is trust income and why does it matter?

If you operate through a trust—whether for business or investment purposes—the net income of the trust (income less expenses) must be distributed each financial year to beneficiaries.

Unlike companies, trusts generally do not retain income. Instead, the taxable income flows through to beneficiaries, who are then taxed on their share.

This makes trust distributions one of the most powerful tools in tax planning in Australia—but also one of the most complex.

Getting distributions right is critical

Deciding who receives income and how much is not a simple decision.

Careful consideration is required to ensure distributions are tax effective, aligned with your overall wealth strategy, and compliant with legal and tax requirements.

Done correctly, trust distributions can significantly improve the retention of your wealth and hard-earned income. Done incorrectly, they can lead to unexpected tax liabilities and compliance issues.

Trust distributions must be determined before 30 June

One of the most important requirements of trust management is ensuring that distribution decisions are made and properly documented before 30 June EOFY.

By law, trustee resolution minutes must be prepared, finalised, and signed prior to 30 June to be valid for that financial year.

If this does not occur, the trustee may be taxed on the income at the top marginal tax rate (up to 47%) and intended tax outcomes may be lost.

This is a critical step in effective tax planning Australia strategies involving trusts.

To ensure valid and effective trust distributions, your financial records must be up to date and all relevant information must be provided to your adviser. The decisions documented in your trust minutes form the foundation of your tax position and annual tax returns.

The importance of the trust deed

Before any distribution decisions are made, the trust deed must be carefully reviewed.

As your adviser, our due diligence requires us to determine who can receive distributions, what types of income can be distributed, and how those distributions must be made.

Every trust deed is different, and incorrect assumptions can result in invalid distributions.

Family trust elections: a critical check

If your trust has made a Family Trust Election (FTE), distributions must generally be made within the family group of the test individual.

If distributions are made outside of this group, tax may be imposed at the top marginal rate (up to 47%).

It is essential to confirm whether an FTE is in place and ensure distributions comply with these rules.

Further to this is determining whether a FTE needs to be put in place if one already does not exist.

Section 100A: what you need to know

In recent years, the ATO has increased its focus on Section 100A, which targets certain trust distribution arrangements.

In simple terms, Section 100A can apply where:

A beneficiary is made presently entitled to trust income
But they do not genuinely benefit from that income
And another party ultimately receives or uses the funds

These are often referred to as “reimbursement agreements.”

If Section 100A applies:

The intended tax outcome can be overturned
The trustee may be taxed at penalty rates

This is why careful planning is essential. When making distribution decisions, it’s important to consider:

Who is receiving the income
Who actually benefits from the funds
Whether the arrangement reflects genuine and commercial outcomes

For example, a common strategy use to be to distribute to adult children, who may not have been in lower tax brackets to take advantage of the tax-free threshold available to each individual and consideration of individual marginal tax rates.

Under s 100A distributing to an adult child now needs to make commercial sense and that adult child must genuinely benefit from the allocated distribution. By the way, schools’ fees are not regarded as a ‘genuine benefit’, the ATO regards school fees as a ordinary parent responsibility.

Another example is allocating distributions to retired or close to retired parents for the same reason you would allocate to an adult child. It must be shown that the parents received a actual benefit of the funds allocated to them.

Planning before 30 June is essential

Trust distribution decisions must be made before 30 June and in accordance with the trust deed.

Leaving this too late can limit your options, increase the risk of errors, and lead to non-compliance.

Proactive tax planning in Australia ensures distributions are valid, tax effective, and aligned with your broader strategy.

Looking ahead: bucket companies

For many clients, distributing income to a bucket company is a strategy used to cap the tax rate.

However, this approach comes with additional considerations, which we will explore further in Part 4 of this series.

Take action before 30 June

If you operate through a trust, now is the time to review your position and ensure everything is in order well before 30 June EOFY.

Book your tax planning appointment with our team today and ensure your trust distributions are compliant, effective, and aligned with your overall tax planning Australia strategy.

Disclaimer  

This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.  

Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder 

Liability limited by a scheme approved under professional standards legislation.