Remember the story of Cinderella? She had to be home before the stroke of midnight else she would be reduced to her rag dress, a pumpkin for her coach and mice for her horses….
Welcome to Trust Distribution Statements.
What is a Trust Distribution Statement?
If you have a discretionary trust (unlike a unit trust) each year BEFORE June 30th you need to ensure you have worked out how much each beneficiary will receive from the trust as income.
Clearly this isn’t always the easiest as you may not know at that point in time just how much profit needs to be distributed – no matter you need to ensure it is done.
How do I put a Trust Distribution Statement together?
Whilst it is often done by your tax agent if you use one, it’s a worthwhile exercise to do and you generally start by dragging out the Trust Deed – and any amendments that it has attached to it. This document will outline who the beneficiaries are, as well as any additional rules that need to be respected in how the profit should be distributed. It is also important to regularly check your Trust deed as they have a limited life span – at the end of which they are ‘vested’ meaning you need to wrap up the trust and all its assets.
Note too – the trust deed might in fact need you to make this Trustee Distribution resolution before a different date, such as the 28th of June instead.
The responsibility of ensuring the Trustee Distribution Resolution (Statement) has been attended to lies firmly at the feet of the Trustee. If the Trustee is a Corporate Trustee- then the director of the Corporate Trustee is responsible.
The Resolution (Statement) itself has no specific format that it needs to be written up as – the only rule being that you much be clear as to which beneficiary gets what amount of income allocated to them from the trust. Note that as you likely have no idea what the total taxable income is – you can allocate as
- Beneficiary A receives $1000 and Beneficiary B the balance of the income OR
- Beneficiary A receives 25% of the income and Beneficiary B receives 75% of the income.
The beneficiaries should have provided the trustee with their tax file numbers so they can be appropriately recorded later on the tax return – and also be informed of their taxable distribution in good time as they also have the right to in some cases disclaim the right to their entitlement.
Failure to attend to a Trust’s Distribution Resolution before the 30th of June each year will result in the entire income of the trust being taxed at the highest rate – which makes a rag dress and a pumpkin coach look pretty good …
So if your tax agent is after you to examine some papers just before the end of June for your Trust – please ensure you contact them well before the end of June – there would be a fair sum of money relying on it for you.