Discretionary Trust Distribution Resolutions: A 2026 Accountant's Guide to the 30 June Deadline

For Australian discretionary trust trustees, 30 June is not just the end of the financial year — it is a hard legal deadline that determines how trust income is taxed. Failing to execute a valid distribution resolution by midnight on 30 June can result in the trust's entire taxable income being assessed at the top marginal rate of 47% (including the Medicare levy) under Section 99A of the Income Tax Assessment Act 1936. With the ATO intensifying its scrutiny of trust arrangements — particularly around Section 100A reimbursement agreements and Unpaid Present Entitlements — getting the resolution right has never been more important.

Understanding Discretionary Trust Distribution Resolutions

A discretionary trust distribution resolution is the formal decision made by a trustee to allocate the trust's net income among its beneficiaries for a given financial year. For a beneficiary to be taxed on trust income, they must be "presently entitled" to that income — and that entitlement must be established by 30 June of the relevant income year.

The resolution does not need to specify exact dollar amounts. Because the trust's final net income is typically calculated by an accountant after 30 June, the ATO accepts resolutions that prescribe a clear and unambiguous methodology — for example, allocating income to beneficiaries up to specific tax thresholds, or distributing set percentages of net income. What matters is that the methodology is clear, consistent with the trust deed, and documented before the deadline.

If no valid resolution is made by 30 June, and the trust deed does not contain a default beneficiary clause that operates automatically, the trustee becomes assessed on the trust's net income at the top marginal rate. This outcome is almost always avoidable with proper planning and timely professional advice.

The 30 June Deadline: What Trustees Must Do

The 30 June deadline is non-negotiable. Trustees must ensure that resolutions are not only made but also documented and signed before midnight on that date. The ATO and the courts have taken a firm stance against backdated or "reverse-engineered" resolutions — backdating a resolution constitutes fraud and exposes trustees to serious legal consequences.

Acceptable forms of evidence include signed and dated meeting minutes, internal emails with timestamps, or digital signatures with verifiable date records created on or before 30 June. The key is contemporaneous documentation — evidence that the decision was genuinely made before the deadline, not reconstructed after the fact.

Trustees should also be aware that streaming specific types of income — such as franked dividends or capital gains — to particular beneficiaries requires additional steps. Franked dividend streaming entitlements must be recorded by 30 June. Capital gains streaming entitlements have a slightly later deadline of 31 August, but the trust deed must explicitly authorise streaming for either to be effective.

Key Considerations for Trustees and Their Accountants

Preparing an effective trust distribution resolution requires careful consideration of several interconnected factors. Trustees and their accountants should work through the following before finalising the resolution:

• Trust deed review — Confirm that the deed authorises the intended distribution strategy, including the use of specific beneficiaries, streaming of income types, and the methodology being applied. A resolution that exceeds the trustee's powers under the deed is invalid.
• Beneficiary selection and tax positions — Model the tax outcomes for each potential beneficiary. Distributing income to beneficiaries in lower tax brackets can significantly reduce the overall tax burden, but the arrangement must reflect a genuine purpose and not be structured to divert economic benefit to another party.
• Section 100A exposure — Assess whether any proposed distribution could be characterised as a reimbursement agreement under Section 100A. If a beneficiary is made entitled to income on paper but the economic benefit flows to another person (such as a parent or the trust controller), the ATO may apply Section 100A, resulting in the trustee being taxed at the top marginal rate.
• Unpaid Present Entitlements (UPEs) — Where income is distributed to a beneficiary (such as a corporate beneficiary or "bucket company") but not physically paid, a UPE is created. The ATO has enhanced UPE reporting requirements in the 2026 trust tax return. Unpaid entitlements owed to private companies may need to be converted into complying Division 7A loan agreements to avoid adverse tax consequences.
• Prior-year UPE reconciliation — Before finalising the current year's distribution, reconcile any outstanding UPEs from prior years to ensure they are being managed correctly and are not creating unintended Division 7A exposure.
• 2026 ATO reporting labels — The ATO has introduced new labels in the 2026 trust statement of distribution (including Label U2 for franked distributions) to improve data matching. Ensure working papers and distribution statements are precise, as this data pre-fills into beneficiary tax returns and inconsistencies may trigger audit flags.

Common Mistakes and Red Flags

Trust distribution errors are among the most common and costly mistakes made by Australian business owners and investors. The following mistakes are frequently identified by accountants and the ATO:

• Missing the 30 June deadline — Even a one-day delay can result in the trust's income being taxed at 47%. This is the most avoidable mistake and the most expensive.
• Vague or ambiguous resolutions — Resolutions that do not clearly identify beneficiaries or specify a determinable methodology may be found invalid. "Distribute income as the trustee sees fit" is not sufficient.
• Resolutions inconsistent with the trust deed — Distributing to a beneficiary not named in the deed, or using a streaming strategy the deed does not permit, renders the resolution invalid.
• Ignoring Section 100A — Arrangements where adult children or low-income beneficiaries receive distributions but the cash is used by or for the benefit of the trust controller are increasingly being challenged by the ATO under Section 100A.
• Unmanaged UPEs — Allowing UPEs to accumulate without converting them into complying loan agreements can create significant Division 7A tax liabilities for the trust and its associated entities.
• No professional review — Trustees who prepare their own resolutions without accountant review risk errors that are difficult and expensive to correct after 30 June.

Australian Regulatory Context

Trust distribution resolutions are governed primarily by the Income Tax Assessment Act 1936 (ITAA 1936), particularly Sections 97, 99, 99A, and 100A. Section 97 provides that a beneficiary who is presently entitled to trust income is assessed on their share of the trust's net income. Section 99A imposes the top marginal rate on trust income where no beneficiary is presently entitled and no default beneficiary clause applies.

Section 100A, which targets reimbursement agreements, has been the subject of significant ATO guidance and litigation in recent years. The ATO's Taxpayer Alert TA 2022/1 and subsequent guidance documents set out the ATO's view on when Section 100A applies and what constitutes an "ordinary family or commercial dealing" that falls outside its scope. Trustees and their accountants must be familiar with this guidance when structuring distributions.

Division 7A of the ITAA 1936 governs loans, payments, and forgiven debts from private companies to shareholders and associates. Where a trust distributes income to a corporate beneficiary and the amount remains unpaid, the UPE may be treated as a deemed dividend under Division 7A unless it is placed on a complying loan agreement within the required timeframe.

The ATO provides a resolutions checklist on its website to assist trustees in meeting their obligations. Registered tax agents and accountants who are members of CPA Australia or Chartered Accountants ANZ are well-placed to provide the technical advice required to navigate these rules.

Practical Checklist for Trustees Before 30 June

Work through the following checklist with your accountant well before the end of the financial year:

• Review the trust deed to confirm the powers available to the trustee and the eligible beneficiaries
• Model the tax outcomes for each potential beneficiary based on estimated trust income
• Assess Section 100A exposure for any proposed distribution arrangement
• Reconcile prior-year UPEs and confirm Division 7A compliance for any unpaid corporate entitlements
• Draft the resolution using a clear methodology that does not require final income figures
• Ensure the resolution is signed and dated by all required parties before midnight on 30 June
• Store the signed resolution with a verifiable timestamp — digital signatures with audit trails are acceptable
• If streaming franked dividends, ensure the specific entitlement is recorded in the resolution by 30 June
• Prepare working papers that align with the 2026 ATO trust statement of distribution labels

How MyMoney® Can Help

Trust distribution resolutions sit at the intersection of trust law, tax law, and accounting practice. Getting them right requires an accountant who understands not just the mechanics of the resolution but also the broader tax planning context — including Section 100A, Division 7A, and the ATO's current compliance focus areas.

MyMoney® connects Australian trustees, business owners, and investors with experienced, qualified accountants who specialise in trust taxation and year-end compliance. Whether you need a one-off review of your resolution strategy or ongoing trust accounting support, the right professional can make a significant difference to your tax outcome.

Post a Brief on MyMoney® to receive tailored proposals from accountants experienced in discretionary trust distributions and ATO compliance. You can also Browse Accountants on MyMoney® to compare professionals and find the right adviser for your trust's needs.