Reminder to be vigilant with trust distribution minutes

The Commissioner of Taxation recently released a Taxation Determination (TD 2012/22) that reaffirms the ATO’s view that a beneficiary’s share of net income is worked out by reference to the proportion of the income of the trust estate to which the beneficiary is presently entitled. 

The ATO has stated that the application of the proportionate approach will depend on the facts and circumstances of each particular case including the terms of the trust deed and any resolution made by the trustee to appoint the income of the trust.

Ineffective trust minutes that do not comply with the terms of your trust’s particular deed will not be accepted by the ATO as a means of working out each beneficiary’s share of income and could result in the ATO issuing assessments to the trust itself by retaining profit in the trust and imposing tax at 46.5%.

This determination highlights the importance of ensuring accurate and effective trust minutes are drafted in relation to the distribution of trust income on an annual basis.