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Variation of income resolutions for trusts

Last updated 30 May 2023

We’ve released guidance explaining the legal complexity and tax consequences of variation of income resolutions to help trustees finalise their trust resolutions by 30 June.

Trustees sometimes use variation of income resolutions as an attempt to direct which beneficiary bears the tax if there’s an adjustment to the net income of the trust after 30 June, due to:

  • a review or audit by the Commissioner
  • an amendment made by the trustee.

The resulting tax consequences are complex to assess because each situation will have unique legal effects which are subject to trust law, not tax law.

To help trustees make informed decisions about the tax consequences of using these resolutions, and provide certainty about our compliance approach, we’ve released:

  • new guidance about Variation of income resolutions
  • an Addendum to Taxation Determination TD 2012/22 Income tax: for the purposes of paragraph 97(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) is a beneficiary’s share of the net income of a trust estate worked out by reference to the proportion of the income of the trust estate to which the beneficiary is presently entitled?

Our guidance includes examples which reflect the Federal Court decision in Lewski v Federal Commissioner of Taxation, highlighting the different tax outcomes possible depending on the legal effect of various trust resolutions.

Often, variation of income resolutions can have a different effect to the outcome intended. For example, the trustee, rather than the beneficiary named in the resolution, may be taxed on the additional income.

We won’t devote compliance resources to examining the effect of variation of income resolutions made before the Addendum to TD 2012/22 was released on 31 May 2023, provided:

  • all net income has been declared
  • there isn’t evidence of tax avoidance, evasion or fraud.

If you are unsure about how our guidance applies to your circumstances, speak with your tax professional.