Budget Update Notice: The 2026/27 Federal Budget contains proposals that may affect the information in this article. As at the date of this notice, these are proposed measures and have not yet passed into law. We are reviewing and updating our content as the legislative process progresses. If you are making a decision based on any of the matters discussed here, please contact us for advice that reflects the current and proposed position.
Every income year, a discretionary trust must exercise its discretion to distribute its trust law income among the trust’s eligible beneficiaries. These decisions are recorded in the trust’s distribution minutes which must be signed prior to June 30 each income year.
However, there are a number of ‘tax traps’ that can spring up if these distribution minutes do not use certain specific words.
The main thing to remember is that trusts can only ever distribute trust law income, as it is defined in the trust deed. Trust deeds can use many different phrases to refer to trust law income (e.g. ‘trust income’, ‘income of the trust fund’ etc.), and the minutes must use the exact same words. If the minutes refer to some other concept of income, such as ‘net income’, ‘taxable income’ or ‘assessable income’, then those distributions will not be effective. That could result in the trustee being taxed on all the income that year, at the top marginal rate!
For this reason, the specific words in your trust distribution minutes are very important.
If you want your distribution minutes to be reviewed so they will not trigger a ‘tax trap’ like this, call ADLV on 1300 654 590 or email us. You can also download a copy of our Trust Distributions Guide here.
The information contained in this post is current at the date of editing – 2 April 2025.
