au-trust-distributions

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# Australia Trust Distributions -- Discretionary & Family Trusts Skill v1.1

## Australia Trust Distributions -- Discretionary & Family Trusts Skill v1.1

> **General reference only.** This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

> **Law-change context (three live fronts).** (1) *Commissioner of Taxation v Bendel* [2026] HCA 18 (10 June 2026): a UPE owed to a corporate beneficiary is not, of itself, a Div 7A loan; ATO decision impact statement 26 June 2026 accepts it -- see Rule 10 and the au-div7a skill. (2) Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Royal Assent 26 June 2026): from 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation plus a 30% minimum rate on capital gains, with new trustee capital-gain categorisation/statement obligations -- LAW, see Rule 14. (3) A 30% minimum tax on discretionary trust distributions from 1 July 2028 (testamentary trusts carved out) was ANNOUNCED in the 2026-27 Budget and is NOT in that Act -- consultation closed 31 July 2026, not yet law. Verify all three before relying.

## Section 1 -- Quick reference

**Read this whole section before computing or classifying anything.**

**Quick reference fields**

| Field | Value |
| --- | --- |
| Country | Australia |
| Primary Legislation | ITAA 1936 Part III Division 6 (ss 95-102), Div 6AA, Div 6D, Div 6E, s 100A; ITAA 1997 Subdivs 115-C, 207-B; Sch 2F ITAA 1936 (FTE/FTDT/trust losses) |
| Tax Authority | Australian Taxation Office (ATO) |
| Income Year | 2026-27 (1 July 2026 -- 30 June 2027); lodgment season for 2025-26 |
| Present entitlement deadline | 30 June (11:59pm) -- or EARLIER if the deed requires |
| Capital-gain specific entitlement recording | Within 2 months of year end (31 August) via appointment of trust capital |
| Franked-distribution specific entitlement recording | By 30 June (in the trust's records, in its character) |
| s 99A rate (no present entitlement) | 45% + 2% Medicare levy = 47% flat, no tax-free threshold |
| Div 6AA minor's eligible income (resident) | $0-$416 nil; $417-$1,307 = 66% of excess over $416; over $1,307 = 45% of the WHOLE amount |
| Family trust distribution tax (FTDT) | 47% of distributions outside the family group; due 21 days after the distribution; non-deductible |
| TFN withholding (closely held trusts, no TFN quoted) | 47%; annual report 30 Sep; activity statement + payment 28 Oct; quarterly TFN report ABOLISHED from 1 July 2026 |
| UPE to corporate beneficiary | NOT a Div 7A loan while passive (*Bendel* [2026] HCA 18); s 100A and Subdiv EA survive -- see au-div7a |
| s 100A guidance | TR 2022/4 + PCG 2022/2 (white/green/red zones) -- in force, under post-Bendel review |
| Contributor | Open Accountants |
| Validated by | Pending |

**Conservative defaults**

| Ambiguity | Default |
| --- | --- |
| Deed not sighted | Do NOT assume trust income = s 95 net income; obtain the deed (income clause, default beneficiaries, vesting date, deadline for resolutions) |
| Resolution date unverified | Assume made AFTER 30 June; test the default-beneficiary clause, else s 99A at 47% |
| Streaming records unsighted | Assume NO specific entitlement -- gains and franked amounts flow proportionately |
| FTE status unknown | Check ATO records; assume no FTE for franking-credit flow-through; assume FTE EXISTS when scanning for FTDT exposure on unusual beneficiaries |
| Beneficiary's family-group status unknown | Assume OUTSIDE the group -- FTDT exposure at 47% until mapped |
| Minor beneficiary, income character unknown | Assume eligible (penalty rates), not excepted income |
| Beneficiary TFN status unknown | Assume not quoted -- 47% withholding exposure |
| UPE credit balance in the books | Passive UPE = no Div 7A loan (post-Bendel), but ALWAYS run the s 100A screen |
| Trust has carried-forward losses | Schedule 2F tests unresolved -- escalate before offsetting |

## Section 2 -- Required inputs and refusal catalogue

### Required inputs

**Minimum viable** -- trust deed (plus amendments), the signed distribution resolution/minute with its date, draft trust income and s 95 net income, beneficiary list with residency/age/TFN status, FTE/IEE status.

**Recommended** -- prior-year statements of distribution, beneficiary loan/UPE ledgers, franking account of any corporate beneficiary, capital gains schedule with acquisition dates, evidence of payment of entitlements.

**Ideal** -- family group map around the test individual, streaming clauses marked up in the deed, bank evidence of where entitlement cash actually went (s 100A), loss schedules with Sch 2F test evidence.

### Refusal catalogue

- **R-AU-TR-1 -- Deceased estates and testamentary trusts** — *Trigger:* deceased estate in administration, testamentary trust, s 99 concessional-rate questions, excepted-income status of testamentary distributions to minors. *Message:* "Deceased estate and testamentary trust taxation (s 99 discretion, stages of administration, Div 6AA excepted income, and the announced minimum-tax carve-out) is out of scope. Escalate to a qualified practitioner."  _(s 99; Div 6AA)_
- **R-AU-TR-2 -- Special disability trusts** — *Trigger:* special disability trust or vulnerable-beneficiary trust. *Message:* "Special disability trusts have their own concessional rules and social-security interactions. Out of scope. Escalate."
- **R-AU-TR-3 -- Non-resident beneficiaries or trustees** — *Trigger:* any non-resident beneficiary, foreign trust, or beneficiary who changed residency. *Message:* "Trustee assessment under s 98(2A)/(3)/(4), withholding, treaty issues and the *Greensill* line on capital gains are out of scope. Escalate before any resolution is signed."  _(s 98(2A)/(3)/(4); *Greensill*)_
- **R-AU-TR-4 -- Circular trust distributions / TBNT** — *Trigger:* trust-to-trust distributions that loop back (directly or indirectly), or trustee beneficiary statement failures. *Message:* "Circular distributions attract trustee beneficiary non-disclosure tax at 47% (s 102UM) -- family trusts included. Computation and remediation are out of scope. Escalate."  _(s 102UM)_
- **R-AU-TR-5 -- s 100A red-zone positions** — *Trigger:* facts matching any PCG 2022/2 red-zone scenario, or entitlement cash that went to someone other than the beneficiary. *Message:* "This has red-zone s 100A features. Document the flows; do not sign off or restructure. Escalate."  _(PCG 2022/2; s 100A)_
- **R-AU-TR-6 -- Trust loss recoupment** — *Trigger:* prior-year losses claimed as deductions in net income. *Message:* "Schedule 2F testing (50% stake, control, pattern of distributions, income injection) is out of scope beyond the overview in Rule 13. Escalate."  _(Schedule 2F)_
- **R-AU-TR-7 -- FTE revocation, variation or FTDT remediation** — *Trigger:* request to revoke/vary an FTE or IEE, or FTDT already triggered. *Message:* "Revocation and variation windows are narrow and FTDT is joint-and-several for directors. Escalate."

## Section 3 -- Distribution-resolution timeline and GL sweep

### 3.1 Compliance timeline (2025-26 year being lodged; same shape every year)

**Compliance timeline**

| Deadline | Obligation |
| --- | --- |
| Before 30 June (check deed -- some require earlier, e.g. 28 June) | Trustee resolution conferring present entitlement to trust income; written record if deed requires (write it regardless) |
| By 30 June | Franked-distribution streaming: specific entitlement recorded in trust records in its character (s 207-58) |
| By 31 August | Capital-gain streaming via appointment of trust CAPITAL: specific entitlement recorded within 2 months of year end (s 115-228) -- cannot override amounts already dealt with by 30 June |
| 21 days after distribution | FTDT payment where an FTE trust distributes outside the family group |
| By 30 September | Annual TFN withholding report (only if amounts were withheld) |
| By 14 October | Payment summaries to beneficiaries who had TFN amounts withheld |
| By 28 October | Annual activity statement + payment of TFN amounts withheld |
| Trust return lodgment | Statement of distribution (annual trustee payment report); beneficiary TFNs reported here from the 2027 return; TB statements where Div 6D applies |

### 3.2 GL / document sweep

**GL / document sweep**

| Pattern | Likely issue | Action |
| --- | --- | --- |
| "Beneficiary loan" / "distribution payable" credit balances | UPEs | Age them; s 100A screen; post-Bendel no Div 7A while passive (au-div7a) |
| UPE unpaid beyond ~2 years with funds retained | Falls outside parts of the PCG 2022/2 green zone | Document green-zone conditions or escalate (T2-5) |
| Distributions exactly $416 to children | Div 6AA planning at the tax-free band | Confirm eligible vs excepted income; confirm actual payment/benefit |
| Distribution to a loss entity | Red zone scenario 5 if outside family group | s 100A screen; Sch 2F escalation |
| Franking credits claimed by beneficiary of non-fixed trust | Qualified-person rules | Confirm FTE in force (Rule 7) |
| First-time or unusual beneficiary | Family-group breach | Map against test individual; FTDT at 47% (Rule 8) |
| Trust lends cash to the person who funded a beneficiary's entitlement | Circular benefit | Red zone screen (R-AU-TR-5) |
| Resolution undated / signed with return | Backdating risk; s 99A | Sight contemporaneous evidence (emails, file notes) |

## Section 4 -- Worked examples

### Example 1 -- Proportionate approach (trust income vs s 95 net income)

Deed defines income as ordinary income. Trust income $100,000; s 95 net income $120,000 (non-deductible amounts and timing differences). Resolution: A 60%, B 40% of trust income.

Bamford proportionate approach: each beneficiary is assessed on their PERCENTAGE of net income, not the dollars they were promised. A: 60% x $120,000 = **$72,000**. B: 40% x $120,000 = **$48,000**. The $20,000 gap is taxed even though nobody can bank it -- flag to the client.

### Example 2 -- Streaming a capital gain and a franked dividend

2026-27 receipts: $80,000 gross capital gain (asset held > 12 months), $70,000 fully franked dividend (franking credit $70,000 x 30/70 = $30,000), $40,000 rent. Trustee validly streams: gain 100% to A (individual; capital appointment recorded 20 August 2027 -- inside 31 August), franked dividend 100% to C Pty Ltd (recorded by 30 June 2027), rent to B.

- A (Subdiv 115-C): attributable gain $40,000 (post-discount share) grossed up x2 = $80,000 capital gain in A's own return; A applies A's own 50% discount (no losses) = **$40,000 assessable**. (From 1 July 2027 this discount mechanic changes -- Rule 14.)
- C (Subdiv 207-B): includes $70,000 + $30,000 credit = $100,000; tax at 30% (bucket company is not a base rate entity on passive trust income) = $30,000 less $30,000 franking offset = **nil net**, franking account credited $30,000.
- B (Div 6/6E): assessed on the $40,000 rent share.

### Example 3 -- Minor beneficiaries (Division 6AA)

Resolutions give grandchild G1 (age 9) $416 and grandchild G2 (age 12) $1,200, both eligible (unearned) income; trustee assessed under s 98(1) as they are under a legal disability.

- G1: $416 sits in the $0-$416 band -> **tax nil** (assuming no other income).

From openaccountants/openaccountants, AGPL-3.0.

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