With 30 June fast approaching, advisors should start thinking about the trustee resolutions.  They were the key topic of discussion at the National Taxation Liaison Group (NTLG) Trust Consultation sub-group agenda on 7 March 2013.

The Australian Taxation Office (ATO) has advised that, when it undertook its 2012 Trustee Resolution Compliance Project, in addition to ensuring the resolutions were made on or before 30 June, it was also reviewing whether the resolution had the intended tax effect. 

The ATO does not intend to undertake a similar exercise this year.  However, it has alerted its staff to the issues that were seen last year.  ATO officers have been advised that, while there will be no active compliance activity, if they are dealing with a trust in a review or audit, they should check the effectiveness of distributions at an early stage. 

The NTLG minutes say:

‘The ATO anticipates this will enable taxpayer arguments to the effect that the wrong beneficiaries have been assessed (because trustee resolutions were not made within the relevant time) surface early enough for the Commissioner to consider whether other taxpayers should be assessed.’

Some of the (other) issues in relation to the effectiveness of resolutions identified include:

  1. Resolutions that provide that a beneficiary is entitled to income ‘should the Commissioner adjust the net income of the trust’.  These resolutions will not have the intended effect as they are contingent.  In addition, we have seen instances where trustees attempt to limit the amount of an adjustment to the trust’s income that is attributable to a particular taxpayer.  For example, trustees seeking to ensure no more than $416 goes to a minor even in the event of an adjustment of income.  However, Post-Bamford, the proportionate approach is applied, meaning that minors (or indeed, any other beneficiary who received a distribution of income pursuant to the resolution) would receive a proportionate increase in taxable income. 

  2. Resolutions streaming only that part of a capital gain included in the net income (and income) of a trust, but don’t deal with the remaining part (for example, the discount component). 

  3. Resolutions purporting to stream amounts other than capital gains and franked distributions.  For example, trustees may want to stream interest income to non-residents, however, this is not permitted.
  4. Resolutions purporting to deal with a notional amount (such as a franking credit) as part of trust income.
  5. Internally inconsistent resolutions.
  6. Resolutions appointing income to entities not within the class of beneficiaries.  This always comes back to the old adage of ‘read the deed’.  In a recent matter the trust deed provided that any person or entity who was, or had been a trustee, was specifically excluded from receiving distributions.  The trustee in question had been trustee for a short time, and had distributed income to itself during the time of its trusteeship, and after- in (unknowing) breach of the deed.
  7. Resolutions of corporate trustees not signed in accordance with the Corporations Act 2001.  Indeed, a company minute that is not:
    1. recorded in the minute book within one month of the meeting/resolution; or
    2. signed within a reasonable time:
      1. after the meeting by the chair of the meeting (or the chair of the next meeting) or,
      2. signed by a director, where there is no meeting; or
    3. signed by the director of a proprietary company with only one director within a ‘reasonable time’ after making the declaration,

is a strict liability offence under the Corporations Act 2001, with a penalty of 10 penalty units or imprisonment for 3 months (or both).

It is clear that trustee resolutions require some precision, thought and tailoring depending on the particular situation.  It is important to dot your ‘i's’ and cross your ‘t’s’ (and sort out your filing to ensure compliance with section 251A of the Corporations Act 2001!) to ensure that a trust resolution is not only made in time, but also has the desired tax effect.


Since 30 June 2012, the ATO has issued its post Clark’s decision response – TD 2012/21 in October 2012.  See our Taxation Update of 31 October 2012.  The ATO has also issued a number of private rulings since Clark.  There have been some court decisions dealing with deed variations, in particular, to extend the vesting date. 

There is probably greater clarity now about when there might be a resettlement.  So, if a decision was made not to make deed amendments at last review, it’s worth revisiting the issue given the current legal landscape.  The important factor though, is to follow the powers and procedures in the deed very carefully.