Tax Round Up

May 2025 Round Up | Year-end trust distributions and succession planning tax risks

2 min read

30/05/25 16:05

ATO focus on trust distributions and succession planning.

This month the ATO is reminding trustees and practitioners of key issues to consider when looking at making trust resolutions or decisions before the end of the financial year. The ATO has also stepped up its focus on succession planning and the tax risks that need to be considered.

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Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director) and Amy Yan (Associate Tax Director) bring you:

Trustees Top 5 EOFY checklist

The ATO has updated its guidance on trusts with an end of financial year checklist to help trustees stay compliant as the 30 June deadline for trust distribution resolutions approaches.

Understand how income is defined for the trust estate - Trustees must accurately determine trust income each year based on the trust deed. Errors often arise from confusing accounting profit with distributable income or misusing trustee powers. Reviewing the deed is essential.
Identify the trust’s beneficiaries - Distributions must be made only to valid beneficiaries as per the trust deed. Mistakes commonly occur when trustees fail to read the deed or distribute to ineligible parties, particularly where there are FTEs and/or IEEs in place.
Understand resolutions and present entitlement - Resolutions to distribute income must be made by 30 June at the latest to be effective for tax purposes. Invalid or late resolutions can result in the trustee being taxed on some or all of the net taxable income of the trust. Alternatively, default beneficiaries could end up being taxed. Resolutions must be timely, clear, and consistent with the deed.
Identify any FTEs or IEEs - Distributions outside the family group under an FTE or IEE attract a 47% FTDT, with no discretion from the Commissioner. Trustees must track elections, understand family groups and maintain records.
Maintain clear and accurate records - Poor record keeping is a leading cause of compliance issues. Trustees are personally liable for trust debts, so clear and complete records are critical to avoid unexpected liabilities.

Reference:

Attention all trustees: Top 5 EOFY checklist!

Succession planning tax risks

The ATO is reminding taxpayers of the importance of careful and thorough succession planning, especially for privately owned and wealthy groups. The ATO is focusing on private groups that incorrectly recognise the tax consequences of transactions or structures to minimise or avoid tax when undertaking succession planning.

Situations that attract the ATO’s attention include:

Entities that fail to recognise that a CGT event happened when they have restructured or transferred an asset
Entities incorrectly applying tax concessions or rollovers
Entities adopting complex structures or entering into an arrangement to access tax concessions or rollovers that are not otherwise available
Entities failing to review the pre-CGT status of assets after an event that affects the beneficial ownership of such assets
Transferring wealth through loans, payments or forgiveness of debt and failing to consider the application of Division 7A
The use of trusts where there are amendments to the trust deed, such as changes to the trustee or appointor, adding or removing beneficiaries and amending the vesting date, and trusts have made family trust elections or interposed entity elections, and are distributing outside the family group
Entities inappropriately using self-managed super funds to access a lower rate of tax.

Reference:

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