Directors' Resolution to Distribute Trust Income (Circulating Resolution)

A trust distribution resolution is a formal decision made by the director(s) of a corporate trustee, determining how the income of a trust will be distributed among its beneficiaries for a particular financial year. This resolution is typically made just before the end of the financial year on 30 June, so that it can represent all the income of that financial year.

NOTE: as this resolution is a directors' circulating resolution, it must be signed by all directors of the corporate trustee to be effective.

The resolution outlines:

1. The beneficiaries who will receive distributions.
2. The amount or percentage of income allocated to each beneficiary.

The importance of distributing trust income at the end of the financial year cannot be overstated. Here's why it's crucial:

1. Tax efficiency: By distributing income to beneficiaries, the trust can potentially reduce its overall tax liability. Beneficiaries are taxed on their share of the trust income at their individual marginal tax rates, which may be lower than the top marginal rate applied to undistributed trust income.
2. Compliance with trust deed: Most trust deeds require the trustee to distribute income annually. Failing to do so may breach the terms of the trust.
3. Flexibility in tax planning: Proper distribution allows for strategic tax planning, taking into account the individual circumstances of beneficiaries.
4. Record-keeping: The resolution serves as a clear record of the trustee's decision, which is crucial for audit purposes and demonstrating compliance with tax laws.

By making a timely and well-considered trust distribution resolution, the director(s) of a corporate trustee can ensure the trust operates efficiently, complies with its obligations, and maximises tax benefits for all parties involved. If you are unsure of how to make this distribution, seek assistance from a tax and accounting professional.