Distributable Net Income (DNI) in Australia: 2026 Guide for Trustees and Beneficiaries

When managing a trust in Australia, understanding Distributable Net Income (DNI) is essential for both trustees and beneficiaries. In 2026, with the Australian Taxation Office (ATO) maintaining a strong focus on trust compliance, knowing how DNI works can help you avoid costly mistakes and ensure trust income is distributed and taxed correctly.

DNI is the figure that determines how much income a trust can distribute to its beneficiaries in a financial year. It is not always the same as the trust’s accounting profit, and the way it is calculated can have significant tax implications for everyone involved.

What Is Distributable Net Income (DNI)?

Distributable Net Income is the amount of income a trust can legally distribute to its beneficiaries for a given financial year. It is a key concept in trust taxation, as it sets the basis for who is taxed on the trust’s income and at what rate.

DNI is shaped by a combination of trust law, the trust deed, and Australian tax legislation. This means that the calculation of DNI can differ from the trust’s accounting profit. Factors such as tax adjustments, capital gains, franking credits, and expenses that are not deductible for tax purposes all play a role in determining the final DNI figure.

- **DNI determines how much taxable income is allocated to each beneficiary.** - **If DNI is not distributed according to the trust deed and tax law, the trustee may be taxed at the highest marginal rate.**

Recent ATO guidance has clarified how DNI should be assessed, especially for family and discretionary trusts. Trustees need to be aware that the way income is distributed and documented can affect the tax treatment of both the trust and its beneficiaries.

Key Policy Considerations for 2026

In 2026, the ATO continues to clarify and enforce rules around DNI, particularly in relation to Section 100A of the Income Tax Assessment Act. The focus is on ensuring that trust distributions reflect genuine entitlements and are not used for tax avoidance.

Section 100A and Trust Distributions

Section 100A targets arrangements where trust income is appointed to a beneficiary, but the benefit is redirected to someone else. The ATO is paying close attention to situations where distributions are made to adult children or other family members, but the funds do not actually reach them. If the ATO determines that a reimbursement arrangement exists, the trustee may be taxed at the highest marginal rate on that income.

Streaming of Capital Gains and Franking Credits

Trusts can stream specific types of income, such as capital gains and franked dividends, to particular beneficiaries if the trust deed allows it. However, the rules for streaming remain strict. Trustees must make clear resolutions and comply with the terms of the trust deed for beneficiaries to receive the intended tax benefits.

Timing of Trustee Resolutions

Trustees are required to make resolutions specifying how DNI will be distributed by 30 June each year. If this is not done, the trustee may be taxed on the undistributed income at the highest marginal rate. Proper documentation and timely decision-making are essential to avoid unintended tax consequences.

Calculating DNI: What Trustees Need to Consider

Calculating DNI involves more than just subtracting expenses from income. Trustees must consider several factors:

- **Non-assessable income:** Some receipts may not be taxable and should be excluded from DNI. - **Deductible and non-deductible expenses:** Only expenses allowed under tax law can reduce DNI. - **Tax adjustments:** Prior year losses and other tax adjustments can affect the calculation. - **Income streaming:** If the trust deed allows, capital gains and franked dividends can be streamed to specific beneficiaries. - **Trust deed directions:** The trust deed may contain specific instructions on how income is to be distributed.

Example of DNI Calculation and Distribution

Suppose a trust earns $120,000 in business income, $20,000 in franked dividends, and $10,000 in capital gains during the year. After allowable deductions, the DNI is $135,000. The trustee resolves to distribute:

- $80,000 to Beneficiary A (including all franked dividends) - $45,000 to Beneficiary B (including the capital gain) - $10,000 remains undistributed and is taxed at the highest marginal rate

Each beneficiary must include their share of DNI in their tax return, with credits for any franking credits or capital gains tax discounts as applicable. If the trust fails to distribute DNI in line with the trust deed or tax law, the trustee risks the ATO taxing the undistributed income at the top marginal rate.

Why DNI Is Especially Important in 2026

The ATO’s ongoing focus on trust distributions means that DNI is a critical issue for trustees and beneficiaries. Getting DNI right is not just about compliance—it can also affect how much income beneficiaries receive after tax.

Trustees should:

- Review their trust deeds to ensure they are up to date and allow for income streaming if needed - Make timely and compliant resolutions for DNI allocations before 30 June each year - Keep clear records and documentation to support the distribution of DNI

Beneficiaries should be aware that their share of DNI will determine their tax obligations for the year. If distributions are not made correctly, beneficiaries may miss out on tax benefits or face unexpected tax bills.

Practical Steps for Trustees and Beneficiaries

For Trustees

- **Understand the trust deed:** Make sure you know what the deed allows in terms of income distribution and streaming. - **Stay informed on ATO guidance:** Keep up to date with any changes in ATO policy or rulings that affect trust distributions. - **Document resolutions:** Ensure all decisions about DNI distributions are documented before the end of the financial year. - **Seek professional advice:** If you are unsure about how to calculate or distribute DNI, consider consulting a qualified adviser.

For Beneficiaries

- **Check your entitlements:** Make sure you understand what share of DNI you are entitled to and how it will affect your tax return. - **Keep records:** Retain any statements or documentation from the trustee regarding your share of DNI and any associated tax credits.

Conclusion

Distributable Net Income is central to trust taxation in Australia, especially in 2026 as regulatory scrutiny continues. Trustees and beneficiaries alike need to ensure DNI is calculated and distributed correctly, with careful attention to trust deed provisions, ATO guidance, and compliance deadlines. By understanding and managing DNI properly, you can reduce risk and help ensure trust income is distributed as intended.