• Capital gains made 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

    Step 1 - Exclude net capital gains from item 12

    If you are a beneficiary of a trust, you may be entitled to (or may have received) a share of the net income of the trust which includes some of the trust's net capital gain. In this case, you do not include your share of the trust's net capital gain at item 12 Partnerships and trusts on your tax return (supplementary section). Instead, you are treated as having a capital gain (or capital gains) worked out in the way explained in step 2.

    Attention

    Item 12 on tax return for individuals (supplementary section)

    Question 12 in the TaxPack supplement tells you to exclude net capital gains from the amount of trust income you write at U item 12 on your tax return (supplementary section). In your distribution statement, the trust should state the amount(s) of capital gain in your trust distribution.

    End of attention

    If your statement shows that your share of the trust's net capital gain is more than the overall net amount of your share of the trust's net income, do not exclude all the capital gain component when you complete item 12 on your tax return (supplementary section). This is an exception to the instruction for item 12 that tells you not to include capital gains there. In this situation you exclude only the overall net amount of your share of trust income and take that amount into account at U item 12. You also use only this lesser amount in working out your capital gains. If you receive a distribution from more than one trust, this applies to each distribution.

    Step 2 - Capital gains you are taken to have made

    These extra capital gains are taken into account in working out your net capital gain for the income year. You include them at step 2 in part B or part C.

    If you are a unit holder in a managed fund, the trustee or manager will generally advise you of your share of the trust's net capital gain, together with details of your share of any other income distributed to you.

    In other cases, the trustee may inform you or you may need to contact them to obtain details.

    If you are a beneficiary who is entitled to a share of a trust's net capital gain, you are taken to have made extra capital gains in addition to those you have made from your own CGT events.

    The trustee may have advised you what your share is or you may need to contact them to obtain details.

    Investors in managed funds and other unit trusts

    If you are a unit holder in a managed fund and have received a distribution from a trust that includes a capital gain, you take that amount into account in working out your net capital gain for the year.

    Trust distributions to which the CGT discount or the small business 50% active asset reduction apply

    You may be a beneficiary who is entitled to a share of the income of a trust that includes a net capital gain reduced by the CGT discount or the small business 50% active asset reduction. In this case, you need to gross up the capital gain by multiplying it by two. This grossed-up amount is an extra capital gain.

    You multiply by four your share of any part of the net capital gain from a trust that the trust has reduced by both the CGT discount and the small business 50% active asset reduction. This grossed-up amount is an extra capital gain.

    If you are entitled to any part of the net capital gain from a trust that the trust has not reduced by one of these concessions, that amount is an extra capital gain.

    Attention

    No double taxation

    You are not taxed twice on these extra capital gains because you can use the discount method to apply the CGT discount to the grossed up amount of the trust capital gains remaining after you have applied your capital losses, and you did not include your capital gains from trusts at item 12 on you tax return (supplementary section).

    End of attention

    Example: Capital gain greater than share of trust net income and capital gain was discounted

    Daniel's trust distribution shows that he received $7,000 as his share of the net income of a trust. This is made up of a non-primary production loss of $3,000 and a net capital gain of $10,000 (after the trust applied the 50% CGT discount). Daniel also made a $2,000 capital loss during the year on the sale of some shares. He does not have any other trust distributions for the year.

    Daniel will need to write a zero at item 12 Partnerships and Trusts on his tax return. He takes $14,000 (that is, the $7,000 remaining capital gain from the trust grossed up) into account in working out his net capital gain at item 17. Therefore, after deducting the capital losses from the grossed up capital gain he received from the trust ($14,000 - $2,000 = $12,000), he applies the 50% CGT discount ($12,000   50% = $6,000) and writes $6,000 at A item 17 on his tax return (supplementary section). He also writes $14,000 ($7,000 grossed up) at H item 17.

    Example: Capital gain greater than share of trust net income and capital gain was not discounted

    Debra's trust distribution shows that she received $2,000 as her share of the net income of a trust.

    This is made up of a primary production loss of $5,000, non-primary production income of $2,000 and a net capital gain of $5,000. (The net capital gain does not include any discounted gains.)

    At item 12 on her tax return (supplementary section), Debra will write $5,000 loss from primary production at L and $5,000 non-primary production income at U (that is, $2,000 non-primary production income plus sufficient net capital gain [$3,000] to offset the loss from primary production).

    Assuming Debra has no other capital gains or capital losses, she will write $2,000 ($5,000 - $3,000) at H and A item 17 on her tax return (supplementary section).

    Example: Distribution where the trust claimed concessions

    Serge 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.

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

    He calculates his net capital gain as follows:

    Gross up the share of the trust's net capital gain ($250) by multiplying by 4

    $1,000

    Deduct capital losses

    $100

    Capital gains before applying discounts

    $900

    Apply the CGT discount of 50%

    $450

    Apply the 50% active asset reduction

    $225

    Net capital gain

    $225

    Serge will write $1,000 at H item 17 on his tax return (supplementary section), which is his total current year capital gain. His net capital gain to be written at A item 17 on his tax return (supplementary section) is $225. He will write a trust distribution of $1,750 ($2,000 - $250) at U item 12 on his tax return (supplementary section).

    Attention

    Applying the concessions

    Remember that you must use the same method as the trust to calculate your capital gain.

    This means you cannot apply the CGT discount to capital gains distributed to you from the trust calculated using the indexation method or 'other' method.

    Also, you can only apply the small business 50% active asset reduction to grossed-up capital gains to which the trust applied that concession.

    End of attention
    Last modified: 06 Oct 2009QC 27893