Present & Specific
Entitlements

What is a present entitlement
and when does it arise?

A beneficiary is presently entitled to trust income if, at the end of the income year, they have an indefeasible, absolute and vested interest in the share of trust income allocated to them — with the right to demand payment from the trustee on demand. A presently entitled beneficiary is assessable on their share of the trust’s net income, regardless of whether the amount is actually paid.

The timing, form and validity of the trustee’s resolution creating the present entitlement are critical. A resolution not made before 30 June, made incorrectly, or creating an amount inconsistent with the deed’s powers, may not create a valid present entitlement — with consequences ranging from the trustee being assessed on undistributed income to Division 7A exposure on unpaid amounts.

• Resolution must be made before 30 June each income year — no exceptions
• The resolution must specify the amount or percentage of each beneficiary’s entitlement
• Interaction with Division 7A — unpaid present entitlements to private companies
• The specific entitlement provisions — streaming capital gains and franked dividends to optimal beneficiaries
• Section 100A — when present entitlements create reimbursement agreement risk (TR 2022/4)
• Income of the trust estate vs net income — the Bamford issue and its effect on year-end resolutions
• Sub-trust arrangements for UPEs owed to corporate beneficiaries