Trust Distributions and Tax: What Every Australian Trustee Must Do Before 30 June 2026

Introduction

The end of the financial year is always a critical time for Australian trustees — but in 2026, the stakes are higher than ever. With the ATO intensifying its scrutiny of trust arrangements and significant legal uncertainty surrounding unpaid present entitlements (UPEs), getting your trust distributions right before 30 June is not just good practice — it’s essential.

Whether you manage a family discretionary trust, a unit trust, or a hybrid structure, missing the deadline or making an invalid resolution can result in the trustee being taxed at the top marginal rate of 47% on undistributed income. That’s a costly mistake that’s entirely avoidable with the right preparation.

The checklist below records the planning steps for the year ended 30 June 2026. If a deadline was missed, seek advice on the actual facts and records rather than treating the old deadline as an opportunity to act now.

How Trust Distributions Work in Australia

A discretionary (family) trust allows the trustee to decide which beneficiaries receive income each year, and in what proportions. For tax purposes, the goal is to create a “present entitlement” — a vested, indefeasible right for a beneficiary to demand payment from the trust.

This entitlement must be established by 30 June for the beneficiary (rather than the trustee) to be assessed on that share of the trust’s net income. If no valid resolution is made and there’s no default clause in the trust deed, the trustee faces assessment under Section 99A of the Income Tax Assessment Act 1936 — at the top marginal tax rate.

The 30 June Deadline: What Trustees Must Do

Make a Valid Trustee Resolution

The trustee must pass a clear, unambiguous resolution to distribute the trust’s income by midnight on 30 June 2026. If your trust deed specifies an earlier deadline, that date takes precedence.

A valid resolution must:

• Comply with the trust deed — only eligible beneficiaries can receive distributions
• Be clear and certain — specify each beneficiary’s entitlement as a fixed dollar amount or percentage
• Be documented in writing — especially if you’re streaming capital gains or franked dividends

Vague or contingent resolutions (such as those dependent on a post-year-end income calculation) may be deemed ineffective by the ATO, leaving the trustee exposed.

What Happens If You Miss the Deadline?

If no valid resolution is made by 30 June:

1. Default beneficiaries named in the trust deed may automatically receive the income — which may not be tax-effective
2. The trustee is assessed on undistributed income at 47% (including Medicare levy) under Section 99A

Neither outcome is desirable. Acting early gives you control over the tax outcome.

Section 100A: The ATO’s Anti-Avoidance Focus

One of the ATO’s biggest compliance priorities in 2025–26 is Section 100A — an anti-avoidance provision that can disregard a beneficiary’s present entitlement and tax the trustee at the top rate instead.

Section 100A applies where there is a “reimbursement agreement”: a beneficiary is made entitled to income, but the economic benefit flows to someone else, with a purpose of reducing tax. For example, distributing income to an adult child who then hands the money back to the parents could trigger Section 100A.

The key exception is “ordinary family or commercial dealing” — arrangements that can be explained by genuine family or commercial objectives, not just tax minimisation.

The ATO’s Traffic Light System (PCG 2022/2)

The ATO’s Practical Compliance Guideline PCG 2022/2 categorises trust arrangements into risk zones:

If your arrangement falls in the red zone, expect ATO scrutiny. Review your distribution strategy with a tax adviser before 30 June.

Unpaid Present Entitlements (UPEs) and Division 7A

Corporate beneficiary entitlements need careful review. The tax treatment depends on the trust deed, the arrangement and the relevant law; do not assume every unpaid entitlement has the same treatment as a company loan.

The Bendel decision: 10 June 2026 update

On 10 June 2026, the High Court dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2026] HCA 18. The earlier discussion of a pending High Court appeal is no longer current. Read the High Court judgment and obtain advice on how it applies to your particular arrangement before taking action.

Streaming Capital Gains and Franked Dividends

Streaming allows trustees to direct specific types of income to beneficiaries who can best use their tax attributes — for example, directing a capital gain to a beneficiary with capital losses, or a franked dividend to a beneficiary who can fully utilise the franking credits.

To validly stream income, you need:

1. Power in the trust deed to stream different classes of income
2. A specific entitlement — the beneficiary’s share must be directly referable to the capital gain or franked dividend
3. Written documentation by the relevant deadline

Key deadlines for streaming:

• Franked distributions: Written record required by 30 June
• Capital gains: Written record required by 31 August (though the general income resolution should still be made by 30 June)

Tax Rates by Beneficiary Type

The tax outcome of a trust distribution depends on who receives it:

Distributing to lower-income individuals (such as adult children or a spouse with lower earnings) remains a legitimate and effective strategy — provided the arrangement constitutes ordinary family dealing and the beneficiary genuinely receives the economic benefit.

Your Pre-30 June 2026 Checklist

Here’s a practical action plan for trustees and their advisers:

1. Review your trust deed — confirm distribution powers, eligible beneficiaries, and any early resolution deadlines
2. Estimate trust income — calculate distributable and net taxable income for 2025–26
3. Assess Section 100A risk — ensure proposed distributions reflect genuine family or commercial dealing
4. Draft a clear, written resolution — specify each beneficiary’s entitlement; include streaming directions if applicable
5. Sign and execute by 30 June — no exceptions
6. Manage UPEs to companies — pay out or place on a Division 7A compliant loan before the company’s lodgment date
7. Document everything — retain signed resolutions and supporting records

Don’t Leave It to the Last Minute

This guide covers the year ended 30 June 2026. That year-end has passed. Review the records and obligations for your 2025–26 return, and check the rules for the relevant income year before making new planning decisions.

At TaxServe Australia, our experienced tax advisers work with trustees and business owners to structure distributions effectively, manage ATO compliance risks, and ensure every resolution is valid and documented before the deadline.

Need help reviewing your records or planning for a later income year? Contact Tax Serve to discuss your circumstances and the deadlines that apply to you.

Sources

1. Australian Taxation Office — Resolutions checklist
2. Australian Taxation Office — Attention all trustees: top 5 EOFY checklist
3. Australian Taxation Office — Tax issues for trusts: tips and traps
4. Australian Taxation Office — Trust taxation – reimbursement agreement (Section 100A)
5. Australian Taxation Office — Practical Compliance Guideline PCG 2022/2
6. Eclipse Advisory — Trust distribution resolutions June 30