EOFY Tax Planning tips for Trusts

TRUSTS

Trust distribution minutes

Ensure you speak to your RSM adviser to ensure your trust distribution resolutions are in place by 30 June 2025.

Be aware that if you are planning to distribute to any new beneficiaries (e.g., adult children, corporate beneficiaries) for the 2025 year or beyond you need to ensure a Tax File Number (TFN) report has been lodged notifying the ATO of the beneficiaries’ TFN before the end of the financial year if not already done. 

This is to notify the ATO of any new beneficiaries as they have an obligation to provide their TFN to avoid having TFN withholding applied to payments at a hefty rate of 47%.

Updated guidance on Family Trust Arrangements

On 23 February 2022, the Australian Taxation Office (ATO) issued long-awaited guidance on discretionary trusts and the application and operation of section 100A of the Income Tax Assessment Act 1936 (ITAA 1936).

The ATO simultaneously issued updated guidance setting out its current view on Division 7A, trusts and unpaid present entitlements owing to corporate beneficiaries. The guidance is set to have a significant impact on discretionary trusts in Australia, particularly in familial arrangements where trusts are used for business and investment purposes and trustees have (or intend to) distribute income of the trust to adult beneficiaries over the age of 18 (adult child beneficiaries) or corporate beneficiaries.

Learn more on this topic here, or contact an RSM adviser for more information.

Division 7A Loans – Trust distributing to a company

When deciding to distribute income from a trust to a company during the 2025 financial year to benefit from a lower company tax rate, ensure you have considered Division 7A consequences.

Where a trust distributes income to a company, the Unpaid Present Entitlement (UPE) may result in a deemed dividend if the UPE is not repaid by the lodgement due date of the trust’s 2025 income tax return or placed on a complying Division 7A loan agreement.

The relevant income tax consequences may be informed by the recent decision in Commissioner of Taxation v Bendel [2025] FCAFC 15. You are encouraged to contact an RSM adviser for more information. 

Trustees Discretionary Powers

Trustees of discretionary trusts should be aware that, notwithstanding their apparently broad discretionary powers, they remain obligated at law to exercise their discretion in good faith, upon real and genuine consideration, and pursuant to the purposes for which their discretion was conferred.

Any failure by a trustee to exercise their discretion in this manner could result in a distribution being rendered void or voidable. This principle was illustrated in the recent Victorian Court of Appeal case of Owies v JJE Nominees Pty Ltd [2022] VSCA 142. 

What this means is that trustees must ensure they are informed of beneficiaries’ circumstances and distribute both income and/or capital in a manner that reflects a trust’s intended purpose, which years after a trust’s establishment may not correspond to a settlor’s stated wishes. Whilst practically, the necessary steps to achieve this will vary depending on the particular characteristics of a trust, it is incumbent on trustees to ensure that they can demonstrate they are informed to the requisite extent to make genuine decisions. For the avoidance of doubt, the test is not of the fairness of decision-making, but rather real and genuine consideration of beneficiaries’ circumstances vis-à-vis a trust’s intended purpose, absent bad faith. 

Conversely, trustees should be aware that the validity of their specific reasons for exercising their discretion in a particular manner may be scrutinised if those reasons are specifically stated, with their being no expectation or requirement to specifically state those reasons.    

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