Trust Distribution Tax Australia: Family Trust Income
Trust Distribution Tax Australia: How Family Trust Income Is Taxed
Trust distribution tax in Australia depends on who is presently entitled to trust income at 30 June, whether the beneficiary is resident, non-resident, under a legal disability, or affected by special rules such as section 100A, family trust distribution tax or the proposed 30% discretionary trust minimum tax.
This guide explains how trust income is distributed, who pays tax, what trustees must report, and what family trusts should review before the new discretionary trust tax rules begin from 1 July 2028.
Key takeaways
- Present entitlement: trust income is usually taxed based on who is presently entitled to income at year end.
- Payment timing: a beneficiary can be taxed even if the money has not yet been paid to them.
- Resident beneficiaries: resident beneficiaries generally include their share of trust net income in their tax return.
- Non-resident beneficiaries: trustees may be taxed on a non-resident beneficiary’s share of trust net income.
- Family trust risk: distributions outside the family group can trigger family trust distribution tax at 47%.
- Budget reform: discretionary trusts may face a 30% minimum tax from 1 July 2028.
Quick navigation
Last verified: 12 May 2026. Official references: ATO trust income guidance, ATO statement of distribution, ATO family trusts and Budget tax reform.
How is trust income taxed in Australia?
Trust income is generally taxed to beneficiaries based on their share of trust income, often called their present entitlement. If a beneficiary is entitled to 50% of trust income, they are generally assessed on 50% of the trust’s net income, subject to special rules for capital gains, franked distributions and non-residents.
The ATO describes this as the proportionate approach and says trust net income is generally taxed in the hands of beneficiaries, or the trustee on their behalf, based on the share of income to which they are presently entitled.
| Step | What happens | Why it matters |
|---|---|---|
| 1 | Trustee calculates trust income and net income. | Accounting income and taxable income may differ. |
| 2 | Trustee determines beneficiary entitlements by 30 June. | Present entitlement drives who is taxed. |
| 3 | Beneficiaries receive distribution information. | They need it to complete their tax returns. |
| 4 | Beneficiary or trustee pays tax. | Resident, non-resident and legal disability rules can change who pays. |
What does present entitlement mean for trust distributions?
Present entitlement means a beneficiary has a present or immediate right to demand payment of trust income. A beneficiary can be presently entitled even if the trustee has not yet paid the cash. The entitlement is generally determined at the end of the income year.
The ATO says present entitlement can exist when a beneficiary has an indefeasible, absolutely vested interest in income and the right to demand immediate payment. The ATO also notes that present entitlement is tested at 30 June and income is assessable in the year the entitlement arose, not necessarily when cash is received.
Simple example: If a beneficiary is made presently entitled to $30,000 of trust income on 30 June 2026 but receives the cash in September 2026, the income may still belong in the 2025-26 tax year.
Who pays tax on a trust distribution in Australia?
A resident beneficiary who is presently entitled and not under a legal disability generally includes their share of the trust’s net income in their own tax return. If the beneficiary is a non-resident or under a legal disability, the trustee may pay tax on their behalf.
| Beneficiary type | Typical tax treatment | Trustee action |
|---|---|---|
| Resident adult beneficiary | Beneficiary reports their share of trust net income. | Provide distribution details for the beneficiary’s tax return. |
| Non-resident beneficiary | Trustee may be assessed on the beneficiary’s share. | Provide tax-paid and income-type details. |
| Beneficiary under legal disability | Trustee may pay tax on their behalf. | Report tax paid so credits can be applied correctly. |
| No beneficiary presently entitled | Trustee tax rules may apply. | Check trust deed, resolutions and return labels carefully. |
The ATO statement of distribution guidance says trustees must provide distribution information to each beneficiary so they can complete their own tax return.
How are trust distributions to non-resident beneficiaries taxed?
Trust distributions to non-resident beneficiaries need special care because the trustee may be taxed on the non-resident beneficiary’s share of trust net income. The tax paid by the trustee may not be final, and the non-resident beneficiary may need to lodge an Australian tax return and claim credits.
The ATO says that if a beneficiary is a non-resident at the end of an income year, the trustee rather than the beneficiary is taxed on that beneficiary’s share of trust net income. The ATO also says the beneficiary may be able to claim a credit for tax paid by the trustee when they prepare their Australian tax return.
Migrant family example
A discretionary trust distributes Australian rental income to an adult child living overseas at 30 June. The trustee should not treat this like a normal resident distribution. Residency, source of income, withholding and trustee tax credits need to be checked before the distribution is finalised.
What is family trust distribution tax in Australia?
Family trust distribution tax is a penalty-style tax that can apply when a family trust or interposed entity distributes income or capital outside the family group after a family trust election or interposed entity election. It is separate from the proposed 30% discretionary trust minimum tax.
The ATO says family trust distribution tax is payable at the top marginal rate plus Medicare levy, currently 47%. The ATO also warns that FTDT can apply to actual distributions or conferrals made outside the family group, and general interest charge can become significant if the issue is discovered years later.
| FTDT risk | Example | What to check |
|---|---|---|
| Wrong family group | Distribution to another family trust with a different specified individual. | Family trust election and specified individual. |
| Company beneficiary problem | Bucket company not inside the correct family group. | Interposed entity elections and ownership. |
| Succession planning mistake | Next-generation trust receives income but is not within the family group. | Election history and family group boundaries. |
What is section 100A risk for trust distributions?
Section 100A is an anti-avoidance rule that can apply when a beneficiary is made presently entitled to trust income but another person receives the real benefit under a reimbursement agreement. If section 100A applies, the trustee can be assessed at the top marginal tax rate.
The ATO says section 100A can apply where a beneficiary’s trust entitlement arose from a reimbursement agreement, someone other than the beneficiary receives a benefit, and at least one party entered the arrangement for a tax reduction purpose.
Practical warning: A distribution to an adult child should be supported by real entitlement and real benefit. If the money is routed back to parents or used mainly to reduce family tax, section 100A risk should be reviewed before the trust return is lodged.
Trust distribution tax examples in Australia
These examples are simplified. They show common trust distribution tax issues, but actual treatment depends on the trust deed, trustee resolutions, beneficiary residency, income character, family trust elections and final Budget legislation.
Example 1: Resident adult beneficiary
| Trust income | $100,000 |
| Beneficiary entitlement | 40% |
| Share of net income | $40,000 |
| Tax reporting | Resident beneficiary generally reports $40,000 in their tax return. |
Example 2: Present entitlement but cash paid later
A trustee resolves by 30 June that Meera is entitled to $25,000 of trust income. The cash is paid in August. Meera may still need to report the income in the year the entitlement arose because trust tax follows entitlement, not only cash receipt.
Example 3: Non-resident beneficiary
A trust distributes Australian-sourced income to Raj, who is a non-resident at 30 June. The trustee may be assessed on Raj’s share. Raj may later lodge an Australian tax return and claim a credit for tax paid by the trustee, subject to the rules applying to the income type.
Example 4: Family trust election problem
A family trust with a family trust election distributes income to another trust controlled by the next generation. If the second trust is outside the specified individual’s family group, family trust distribution tax may apply. The tax issue may be far larger than the ordinary income tax expected.
Trustee checklist before distributing trust income
Trustees should review trust distributions before 30 June, not after the accounts are finalised. The most common errors involve late or unclear resolutions, wrong beneficiaries, non-resident beneficiaries, unpaid entitlements, family trust election mismatches and section 100A risk.
Distribution checklist
- Read the trust deed before preparing distribution resolutions.
- Identify all eligible beneficiaries and excluded beneficiaries.
- Confirm resident or non-resident status at 30 June.
- Check whether any beneficiary is under a legal disability.
- Confirm whether a family trust election or interposed entity election exists.
- Check whether the distribution is inside the family group.
- Review unpaid present entitlements and Division 7A exposure.
- Assess section 100A risk where another person receives the real benefit.
- Prepare beneficiary distribution statements with income type details.
- Review the proposed 30% discretionary trust minimum tax for future years.
How does the 2028 discretionary trust tax change affect distributions?
From 1 July 2028, discretionary trust distributions may need to be tested against the proposed 30% minimum tax. This does not replace existing trust rules. Instead, it adds another layer to distribution planning for family trusts, business trusts and property-holding trusts.
Read Eduyush’s full Budget reform guide on discretionary trust tax changes. Property investors should also review negative gearing changes and the negative gearing calculator because trust distributions, rental losses and capital gains may interact.
FAQs on trust distribution tax Australia
Who pays tax on trust distributions in Australia?
A resident adult beneficiary who is presently entitled and not under a legal disability generally pays tax on their share of trust net income. If the beneficiary is non-resident or under a legal disability, the trustee may pay tax on their behalf.
What does presently entitled mean in a trust?
Presently entitled means the beneficiary has a present or immediate right to demand payment of trust income. A beneficiary can be presently entitled even if the cash is paid later. The timing at 30 June is usually important for tax reporting.
Can a trust distribute income to adult children?
A trust may distribute income to adult children if the trust deed allows it and the trustee validly resolves to do so. However, trustees should review section 100A risk if the child does not receive the real benefit or the arrangement mainly reduces family tax.
What is family trust distribution tax?
Family trust distribution tax can apply when a family trust or interposed entity distributes outside the family group after making a family trust election or interposed entity election. The ATO says the rate is currently 47%, being the top marginal rate plus Medicare levy.
How are trust distributions to non-residents taxed?
If a beneficiary is non-resident at year end, the trustee may be taxed on that beneficiary’s share of trust net income. The beneficiary may later claim a credit for tax paid by the trustee when lodging an Australian tax return, depending on the income type.
Will the 30% discretionary trust tax replace trust distribution tax rules?
No. The proposed 30% minimum tax is an additional Budget reform for discretionary trusts from 1 July 2028. Existing rules on present entitlement, non-resident beneficiaries, family trust distribution tax, section 100A and trustee reporting still need to be considered.
Disclaimer: This article is general education only and is not tax, legal or investment advice. Trust taxation depends on the trust deed, resolutions, residency, income type, elections and final legislation. Trustees should obtain professional advice before making distributions.
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