Every trust needs a valid resolution deciding who gets the income for the year, and it needs to happen before the financial year ends, not after. Get it wrong, or get the substance of it wrong, and the consequences range from an unwanted tax bill to a full ATO challenge under Section 100A. Here is what actually matters.
For a beneficiary to be taxed on trust income, they need to be "presently entitled" to it by year end. Some trust deeds set an earlier deadline than 30 June, so it is worth checking yours rather than assuming the general date applies. If no effective resolution is made in time, either a default beneficiary named in the deed picks up the income, or, if there is none, the trustee is assessed on the trust's income at the top marginal rate, with no tax-free threshold. That is a genuinely expensive mistake to make by simply running out of time.
Section 100A is aimed at what the law calls reimbursement agreements: arrangements where a beneficiary is made presently entitled to trust income on paper, but the real economic benefit of that money actually goes to someone else. The classic example is streaming income to an adult child on a low tax bracket, while the parents keep using the money for the mortgage or the school fees. If Section 100A applies, the beneficiary's entitlement is disregarded and the trustee is taxed at the top rate instead, and there is no time limit on the ATO going back to amend a prior year.
The ATO's guidance (PCG 2022/2) sets out a rough green zone and red zone. Green zone, lower risk, includes income paid directly into the beneficiary's own account and genuinely used or kept by them, such as their own savings, rent or study costs, and ordinary commercial loans between related entities with real terms and actual repayments. Red zone, higher risk, includes distributions to an adult child where the parents are the ones actually spending the money, and circular arrangements where funds move through related trusts, companies or loans and effectively end up back with the original family group.
When a trust resolves to distribute to a beneficiary but does not actually pay it out, that creates an unpaid present entitlement, or UPE. Where the beneficiary is a company, this used to automatically be treated by the ATO as a Division 7A loan. In June 2026, the High Court ruled against that position in Commissioner of Taxation v Bendel, finding a UPE is not automatically a Division 7A loan unless there is an actual obligation to repay. That is a real and current shift in the law, and it increases the ATO's likely reliance on Section 100A instead to challenge arrangements it sees as artificial. Properly documenting genuine loan arrangements for any UPE remains the safest approach regardless.
Not sure your trust's resolutions are drafted properly, or want a second set of eyes before 30 June? Book a free call and we will look at it with you.
Check your deed's actual deadline. Some require resolutions well before 30 June.
Make sure the money actually flows to the named beneficiary. Pay distributions into the beneficiary's own account, and keep records showing they genuinely used or kept the funds.
Avoid circular arrangements. If money distributed to one entity ends up back with the original family group through a chain of loans or further distributions, that is exactly what draws scrutiny.
Document any UPEs properly. Either pay them out, or put a complying loan arrangement in place, rather than leaving them sitting undocumented.
Trust distribution resolutions must be valid and in place before your deed's deadline, or the trustee gets taxed at the top rate. Section 100A targets arrangements where the paper trail says one thing and the money actually goes somewhere else. Keep the substance genuine, document everything, and get resolutions checked before year end rather than after.
We prepare trust resolutions as part of our company and trust compliance service, with fixed fees agreed upfront. Book your free call here.
This article is general information only and does not take into account your personal circumstances. Please seek advice tailored to your situation before acting.
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