Preparing your family trust for EOFY

With less than a month to go before the end of the financial year (EOFY), some important tasks need to be completed for a family trust.

Discretionary trusts (often called family trusts) are the most common type of trust used in Australia and are generally created to hold and protect family or business assets.

Trustees of family trusts can distribute trust income or capital to any beneficiaries they choose.

This means beneficiaries have no entitlement to receive payments in any one year, so one of the key tasks before EOFY is making the necessary trustee resolutions for the current income year.

To ensure the trust’s discretionary beneficiaries are presently entitled to trust income, effective resolutions must be made by June 30, or the date noted in the trust deed. This is particularly important if you wish to make beneficiaries specifically entitled to franked dividends and capital gains this year.

Putting it in writing

Written records of annual resolutions are essential if you wish to effectively stream capital gains or franked distributions to beneficiaries for tax purposes.ⁱ

If a resolution deals with franked distributions from the trust, trustees are required to put these in writing, indicating the beneficiaries specifically entitled to the franked distribution.

When it comes to capital gains, written resolutions are also required and need to be made by August 31 of the following income year to ensure discretionary beneficiaries are specifically entitled to the capital gain.

However, if some or all of a capital gain forms part of the income of the trust estate, the resolutions need to be made by June 30, because any capital gain forming part of the trust income cannot be specifically dealt with after a beneficiary has already been made presently entitled to it.

Check family trust elections

It’s also vital to check the elections your family trust currently has in place to avoid incurring family trust distribution tax (FTDT).ⁱⁱ

If a trustee distributes income or capital to an entity other than the individuals specified in the family trust election, FTDT is payable at the top marginal tax rate (plus the Medicare levy) on the distributions.

The ATO encourages trustees to regularly review their trust’s in-force elections. It recommends checking annually whether current elections can or should be revoked, if the specified individuals remain suitable, and the timeframes for varying or revoking elections.

If any new beneficiaries have been added to the trust during the income year, ensure you are holding their tax file number.

Prepare for new reporting requirements

Trustees also need to ensure they are prepared for the administration changes from 1 July 2024. These changes are part of the Modernisation of Trust Administration Systems (MTAS) project and affect return lodgements for the 2023-24 and later income years.ⁱⁱⁱ

The MTAS project was announced in the 2022-23 Federal Budget with the aim of streamlining taxpayer lodgements, improving the accuracy of income tax return information from trusts, and providing better information for ATO compliance activities. The new system is also designed to encourage the 30,000 trusts still lodging paper returns to move to electronic lodgement.

From 1 July 2024, trustees are required to complete four new capital gains tax (CGT) labels in the statement of distribution section of their trust’s return. These labels are designed to help notify beneficiaries of their entitlement to trust income and assist with calculation of CGT amounts in their tax returns.

Trustees are also required to prepare a new trust income schedule for all beneficiaries receiving income from the trust. Beneficiaries will need to lodge this trust income schedule with their annual tax return.

If you have any questions about EOFY requirements for your family trust, speak with your Alteris adviser today. We have also created a resource that can help you to effectively assess and plan your finances this end of financial year. 

i Capital gains | Australian Taxation Office (ato.gov.au)  

ii Family trusts – concessions | Australian Taxation Office (ato.gov.au)

iii Modernising trust administration systems | Australian Taxation Office (ato.gov.au)