Instalment income from a trust
Trust beneficiaries may need to know how much instalment income they receive from the trust so they can calculate their pay as you go (PAYG) instalments.
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How a beneficiary calculates their PAYG instalments
As a beneficiary of a trust, you need to know how much instalment income you have from the trust if you:
- pay PAYG instalments
- calculate your PAYG instalments by multiplying your instalment rate by your instalment income (option 2 on your activity statement).
The trustee should tell you how much instalment income you have from the trust. You should:
You do not need to know your instalment income if you pay PAYG instalments using the instalment amount we give you (option 1 on your activity statement or instalment notice). You can simply pay the amount we have calculated for you.
Instalment income from different types of trust
The rules for working out a beneficiary's share of instalment income differ depending on the type of trust.
Broadly held resident investment unit trusts
When a trust meets the strict requirements to be a broadly held resident investment unit trust and it has more than 50 unit holders, the beneficiaries record their trust income on a cash basis.
If you are a beneficiary of this type of trust, your instalment income must include any amount the trust has distributed to you, or applied for your benefit, in the instalment period. You must include the amount even if it is:
- assessable income for an earlier or later year
- trust income or trust capital.
Absolutely entitled trusts
An absolutely entitled trust must meet 3 tests:
- Beneficiaries must be absolutely entitled to the assets of the trust.
- Beneficiaries must have an interest in the trust income.
- The only active duties of the trustee are dealing with the trust income and property, as directed by the beneficiaries.
If you are a beneficiary of this type of trust, your instalment income includes your share of the instalment income earned by the trust in the instalment period. The calculation of your share is based on your interest in the trust income.
Managed investment trusts and public trading trusts
If you are a beneficiary of a managed investment trust or a public trading trust, your instalment income must include any amount the trust has distributed to you in the instalment period.
Other trusts (including family discretionary trusts)
If you are a beneficiary of a family discretionary trust or another trust type (not outlined above), you must include your share of the instalment income earned by the trust in the instalment period.
Calculating a beneficiary's share of income
If the beneficiary is using the instalment rate (option 2), they will need financial information from the trustee to calculate their PAYG instalments. The beneficiary may ask for this information. As a trustee, you will need to calculate the instalment income of each beneficiary and advise them quarterly.
You can calculate a beneficiary's share of the trust's instalment income using the formula (A ÷ B) × C, where:
You can find A and B in the trust's most recently lodged tax return. These amounts need to be updated when either:
- a future trust tax return is lodged for the trust
- the most recent trust tax return is amended.
There may be times when the result of the formula is zero. For example, this may happen if the trust had a loss in an earlier year. In these cases, you must estimate a fair and reasonable amount of current instalment income from the trust.
Beneficiary's assessable income from the trust for the last income year
This amount is shown on the trust's tax return at item 57 (labels A, B, U and H).
Trust's instalment income for the last income year
This is generally the trust's gross ordinary income. It is the total of the amounts shown on the trust's tax return at:
- Item 5: Other business income (labels G and H)
- Item 8: Distribution from partnerships (labels A and B) and Distribution from trusts (labels Z, R and F)
- Item 9: Gross rent (label F)
- Item 10: Forestry managed investment scheme (label Q)
- Item 11: Gross interest (label J)
- Item 12: Dividends received (labels K and L)
- Item 14: Other Australian income (label O)
- Item 23: Other assessable foreign source income (label B)
- Item 31: Taxation of financial arrangements (TOFA). If the trust is a TOFA entity, then:
- if TOFA gains (label M) are greater than TOFA losses (label N), subtract the TOFA losses (label N) from the sum of the labels
- if TOFA losses (label N) are greater than TOFA gains (label M),subtract TOFA gains (label M) from the sum of the labels.
Trust's instalment income for the current period
This amount should be in the trust's records for each instalment period.
Example: working out a beneficiary's share of a trust's instalment income
Jill runs a clothing business as a sole trader. She is also one of 3 beneficiaries of a discretionary trust operating a building business.
Jill is required to pay PAYG instalments. She has chosen to pay using option 2 (instalment rate × instalment income) and we have notified her of an instalment rate.
To calculate her instalments, Jill needs to know her share of instalment income from the trust.
Carlo is the trustee of the trust. He calculates Jill's share of instalment income from the trust using the formula (A ÷ B) × C:
- A: Jill's assessable income from the trust for the last income year
- B: the trust's instalment income for the last income year
- C: the trust's instalment income for the current period.
Jill's assessable income from the trust is shown at item 57 label B (Share of income – Non primary production) of the trust's tax return for the last income year. In Jill's case this is $45,000.
The trust's instalment income for the last income year is also shown in its tax return. It is the total of the amounts shown at:
- Item 5 Business income, label H (Non-primary production - Other business income): $200,000.
- Item 8 Partnerships and trusts, label B (Non-primary production – Distribution from partnerships, less foreign income): $4,000.
- Item 9 Rent, label F (Gross rent): $5,400.
- Item 10 Forestry managed investment scheme income, label Q: zero.
- Item 11 Gross interest, including Commonwealth Government loan interest, label J: $230.
- Item 12 Dividends: the amount at label K is zero and the amount at label L (Franked amount) is $56.
- Item 14 Other Australian income, label O: $200.
- Item 23 Other assessable foreign source income, label B: zero.
- Item 31 TOFA: zero.
Therefore, the total trust instalment income for the last income year is:
- $200,000 + $4,000 + $5,400 + $230 + $56 + $200 = $209,886
The trust's instalment income for the current period is $69,400. This amount is for building services.
Jill's proportion of the trust's instalment income for the quarter is:
- ($45,000 ÷ $209,886) × $69,400 = $14,879
Carlo advises Jill (and any other beneficiaries) of their share of the trust's instalment income.
Jill adds this amount to the instalment income from her clothing business to work out her PAYG instalment for the period.
End of example