• CGT concessions obtained by a trust

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    There are special rules that enable concessions obtained by a trust to be passed on to the beneficiaries of the trust.

    If you are an individual beneficiary who is presently entitled to a share of the income of a trust that includes a capital gain reduced by the CGT discount or the small business 50% active asset reduction a 'gross up' mechanism applies.

    You must 'gross up', by multiplying by 2 your share of any net capital gain received from a trust that has been reduced (by the trust) by either the CGT discount or the small business 50% active asset reduction, and by multiplying by 4 your share of any net capital gain received from a trust that has been reduced (by the trust) by both the CGT discount and the small business 50% active asset reduction. If neither concession applies you are treated as having a capital gain equal to your share of the net income of the trust that is attributable to the trust net capital gain.

    The method of calculating a net capital gain is then applied to this 'grossed up' amount to determine your net capital gain.

    The 'grossed up' capital gain is first reduced by any of your own capital losses which you have not used to reduce other capital gains. Any of the 'grossed up' capital gain remaining after capital losses is then reduced by the CGT discount and/ or the small business 50% active asset reduction if the trust's capital gain was reduced by those concessions.

    The 'grossed up' capital gain is an extra capital gain (additional to your share of the trust's net capital gain included in your share of the net income of the trust) and accordingly you are entitled to a deduction for that part of your share of the net income of the trust that is attributable to the trust's net capital gain.

    Example

    Martin is a beneficiary in the Shadows Unit Trust. He receives a distribution of $2,000 from the trust. This distribution includes $250 of net income remaining after a $1,000 capital gain made by the trustee was reduced by the CGT discount and the small business 50% active asset reduction.

    Martin has also made a capital loss of $100 from the sale of shares.

    Martin calculates his net capital gain as follows:

     

    $

    $

    Share of trust net capital gain

     

    250

    Gross up the amount by multiplying by 4

    1,000

     

    Deduct capital losses

      100

     
     

    900

     

    Apply 50% CGT discount

      450

     
     

    450

     

    Apply 50% active asset reduction

      225

     
     

      225

     

    Assessable capital gain

     

      225

       

    475

    Deduction for share of trust net capital gain

     

    250

    Net capital gain

     

    225

    Martin will show at H item 14 on his tax return $1000 (250 plus 1000 less 250). He will show $100 at X. The net capital gain at W is $225. He will show a trust distribution of $1750 at U item 11.

    Last modified: 18 Sep 2009QC 18323