I am the Trustee of a fixed Trust that has two beneficiaries, my adult children. I have consulted with the ATO, and engaged the services of one of Australia's leading tax and trust firms over the past two and half years in an attempt to resolve legal issues with one of the beneficiaries, and close the trust.
In March 2026, I lodged the Trust's FY24 tax return and marked it final. The return reported a CGT tax event regarding a real estate property. It resulted from the signing of a Deed between the beneficiaries and I, in January 2024. After the trust's accrued capital losses were used there was still a net capital gain. In May 2026, I consulted with the ATO, followed the Trust Deed, and distributed the Trust's net revenue to the two beneficiaries. The ATO said I had finalised the Trust's taxation affairs and gave permission for the trust to be closed.
One of the beneficiaries does not believe I have reported the tax correctly. She says she has legal advice stating that she and her brother were absolutely entitled to the trust's assets, including the real estate. She intends to report the whole capital gain on her personal tax return without deducting the capital losses and expenses available to the trust, and use my money sitting in her solicitor's escrow account to pay the "inflated" capital gain she reports.
I have expert legal advice, specific to the Trust Deed, that says "it is not possible for xxx and xxx to be absolutely entitled to the Property against the Trustee because the Property is not fungible and the Trust has more than one beneficiary". They gave other reasons why it was not possible for xxx and xxx to be absolutely entitled to the Trust's assets. Their opinion referenced case law and ATO rulings.
How do I prove to the beneficiaries that they are not absolutely entitled to the assets of the Trust, and that it was my responsibility as Trustee to report the Trust's tax affairs? How do I stop a beneficiary from ignoring their notice of distribution, and misreporting the Trust's CGT event?
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