• 8 Partnerships and trusts

    The trust’s income from a partnership includes income or a loss that the trust received, was entitled to receive or was entitled to deduct in respect of that partnership.

    The trust’s income from other trusts includes the trust's share of the net income (for tax purposes) of the other trusts, which generally corresponds to the percentage share of the other trust's distributable income that the trust received or was entitled to receive as a beneficiary under a will, settlement, and deed of gift or other instrument of trust.

    Distributions from partnerships or shares of the net income of other trusts may include or be attributable to the partnership or trust's share of any:

    • TFN amounts withheld from interest, dividends and unit trust distributions
    • franking credits attached to franked dividends received indirectly from an Australian franking company
    • amounts withheld where an ABN was not quoted.

    Copy the details from any statements of distribution or advice received from the partnerships and other trusts to new Worksheet 2. This is the trust’s record if we need more details later.

    If the partnership or trust statement of distribution or advice includes an amount described as dividends or franking credits from a New Zealand franking company, do not include these at item 8. Show these amounts at item 23 Other assessable foreign source income.

    Do not include any payments and loans received from trustees or amounts that are debts forgiven by trustees that are treated as dividends under Division 7A of the ITAA 1936. Show these amounts at K item 12.

    If partnership or trust statement of distribution or advice includes amounts described as foreign income or capital gains, do not include these at item 8.

    Show foreign income at item:

    • 22 Attributed foreign income, or
    • 23 Other assessable foreign source income.

    Show net capital gains (including foreign capital gains) at item 21 Capital gains. Dividends received from listed investment companies (LIC) are not distributions of net capital gains: for more information, see the Guide to capital gains tax 2016.

    To the extent that family trust distribution tax (FTDT) has been paid on income or capital to which the trust is presently entitled or has been distributed from or received from a partnership or other trust, an amount is excluded from the assessable income of the trust under section 271-105 of Schedule 2F to the ITAA 1936.

    For more information about the circumstances in which FTDT is payable, see Family trust distribution tax.

    If the trust receives or is presently entitled to a share of income which includes an amount, received indirectly from a closely held trust, on which trustee beneficiary non-disclosure tax (TBNT) has been paid, you do not need to include the amount in the trust’s assessable income.

    Any losses or outgoings incurred in deriving an amount that is excluded from assessable income because FTDT or TBNT has been paid are not deductible. The trust cannot claim a tax offset for any franking credits attributable to the whole or a part of a dividend that is excluded from assessable income.

    Primary production

    Distribution from partnerships

    Show at A the amount of primary production income or loss distribution from partnerships.

    If this amount is a loss, print L in the box at the right of the amount.

    Share of net income from trusts

    Show at Z the trust's share of primary production income which has been included in the net income (for tax purposes) of other trusts. The statement of distribution or advice from the other trusts(s) should separately show this amount. This amount should include the trust's share of primary production income which has been included in the net income of other trusts where the trust became presently entitled to primary production income of other trusts in the income year but has not yet received it.

    If the trust's share of primary production income included in the net income of other trusts is zero because the other trust has made a loss from its primary production activities, print L in the box at the right of the amount. Show a loss at Z only if it is a component of an overall distribution of net income from the same trust.

    If this amount is not a loss, in the box at the right of Z print the code from table 1 that best describes the type of trust from which the distribution is made. If this amount is from more than one type of trust, print the code that represents the trust with the greatest amount of distribution.

    Deductions relating to amounts shown at A and Z

    Show at S the trust’s deductions for its own expenses relating to primary production distributions from partnerships. Also show at S the trust's deductions for its own expenses in deriving its share of primary production income which has been included in the net income (for tax purposes) of other trusts. Expenses incurred on behalf of those other trusts are not able to be deducted by the trust.

    If you have prepaid any expenses, the amount that you can claim at S may be affected by the prepayment provisions, for more information see Deductions for prepaid expenses 2016.

    Expenses listed here that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules, for more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise be included at S.

    Net primary production amount

    Show here the net result of adding the trust’s partnership distributions of primary production income and the trust's share of primary production income that has been included in the net income (for tax purposes) of other trusts less allowable deductions related to that income.

    Write the total amount in the box at Net primary production amount. If this amount is a loss, print L in the box at the right of the amount.

    Non-primary production

    Distribution from partnerships, less foreign income

    Show at B the amount of non-primary production income or loss from partnerships. Include any share of credit for tax withheld in Australia due to foreign resident withholding that is attached to the distribution. (Also include the share of credit at U item 8).

    If the amount at B is a loss, print L in the box at the right of the amount.

    If the distribution includes franked dividends from a franking entity, check the statement of distribution or advice detailing the distribution to ensure that the amounts to be included here represent both the trust’s share of the franked dividend and its share of the franking credit attached to the franked dividend. The franking credit is also included at D item 8. Franked distributions received from a partnership are shown at B and not at F item 8.

    Do not show any dividends or franking credits indirectly received attributable to distributions from a New Zealand franking company here. If the trust received dividends or franking credits indirectly from a New Zealand franking company, see item 23 Other assessable foreign source income.

    If the trust received a distribution from a partnership and that partnership advised that it claimed a deduction in respect of a LIC capital gain amount, the trust is required to include its share of the deduction allowed to the partnership at item 14 Other Australian income.

    Share of net income from trusts, less capital gains, foreign income and franked distributions

    Show at R the trust's share of the non-primary production income, which was included in the net income (for tax purposes) of other trusts. The statement of distribution or advice from the other trusts should separately show this amount. Include any share of credit for tax withheld in Australia due to foreign resident withholding that is attached to the distribution. (Also include the share of credit for tax withheld from foreign resident withholding at U item 8.)

    The trust's franked distributions from trusts and its share of the franking credits referrable to those franked distributions (the franking credit 'gross-up') are no longer included at the amount shown at R. These amounts are now included at F. See Franked distributions from trusts for more instructions on this amount. However, these amounts are still relevant to working out whether the overall share of net income (for tax purposes) from non-primary production activities is a positive amount. Unfranked distributions are still shown at R.

    In working out the trust's share of non-primary production income included in the net income (for tax purposes) of other trusts, amounts to which the trust became presently entitled in the income year but has not yet received should also be taken into account.

    Although for tax purposes a trust cannot distribute a loss, in certain circumstances a trust may have made a loss in relation to its non-primary production activities and yet still have a positive amount of net income because its share of primary production income included in the net income for tax purposes is positive. In these circumstances, for the purposes of certain provisions relating to primary producers, it may be necessary to identify where the trust's share of net income from another trust related to non-primary production activities is a loss, and record this at R.

    If the trust's share of non-primary production income which was included in the net income (for tax purposes) of another trust is a loss, print L in the box at the right of the amount. Show a loss at R only if the amount is a component of an overall distribution of net income from the same trust. The loss at R should be adjusted for any amounts shown at F and G relating to franked distributions from trusts.

    If this amount is not a loss, in the box at the right of R print the code from Table 1 that best describes the type of trust from which the distribution is made. If this amount is from more than one type of trust, print the code that represents the trust with the greatest amount of distribution.

    Deductions relating to amounts shown at B and R

    Show at T the trust’s deductions for its own expenses relating to non-primary production distributions from partnerships, except those deductions which are directly related to the earning of franked distributions from trusts which are shown at G. Also show at T the trust's own expenses incurred in deriving its share of non-primary production income which has been included in the net income (for tax purposes) of other trusts. Expenses incurred on behalf of those other trusts are not able to be deducted by the trust.

    If any expenses have been prepaid, the amount that you can claim at T may be affected by the prepayment provisions, for more information, see Deductions for prepaid expenses 2016.

    Expenses listed here (and where relevant at G relating to franked distributions from trusts) that are costs associated with borrowing and servicing debt may not be allowable deductions under the thin capitalisation rules, for more information, see Appendix 3. The disallowed amount reduces the amount that would otherwise go at T or where relevant G.

    If FTDT has been paid on income or capital of another trust or partnership that the trust is entitled or which has been distributed to the trust, an amount is excluded from the trust's assessable income under section 271-105 of Schedule 2F of the ITAA 1936. Do not show this at A, Z, B, R or F. You cannot claim a deduction for any losses or outgoings incurred in deriving an amount that is excluded from assessable income at S, T or G, for more information about the circumstances in which FTDT is payable, see Family trust distribution tax.

    If trustee beneficiary non-disclosure tax (TBNT) has been paid in respect of an amount that would otherwise be assessable to the trust, that amount is excluded from the assessable income of the trust. Do not show that income at A, Z, B, R or F. You cannot claim a deduction for any losses or outgoings incurred in deriving an amount which is excluded from assessable income at S, T or G.

    Franked distributions from trusts

    A franked distribution is a distribution that has a franking credit attached to it and includes both fully and partially franked distributions. If the trust's share of the non-primary production income included in the net income of other trusts includes an amount described as franked dividends, franked distributions or attributable franked distributions, check the statement of distribution or advice detailing the distribution to ensure that the amounts to be included at this entry represent both the trust’s share of the franked distribution and its share of the franking credit attached to the franked distribution (the franking credit 'gross-up').

    Show at F the trust's share of the franked distribution (described as franked dividends, franked distributions or attributable franked distributions), plus its share of the franking credit attached to the franked distribution. The franking credit is also included at D item 8. Unfranked distributions are shown at R item 8.

    Do not show any share of another trust's non-primary production income included in the net income of that other trust that includes any dividends or franking credits indirectly received which were attributable to distributions from a New Zealand franking company at this entry, instead, see item 23 Other assessable foreign source income.

    If the trust received, or was entitled to receive, income from another trust, and that income included a franked distribution (dividend) paid by a LIC, the total franked distribution should be shown at F.

    If the trust received, or was entitled to receive, income from another trust, and that trust advised that it claimed a deduction in respect of a LIC capital gain amount, the trust is required to include an amount equal to its share of the deduction allowed to the trust at item 14 Other Australian income.

    Deductions relating to franked distributions from trusts in F

    Show at G the trust's deductions for its own expenses incurred in deriving its share of the franked distributions from trusts at F. The amount of deductions which can be claimed at G may be also be limited in circumstances such as those described above, for example by the prepayment and thin capitalisation rules, or because an amount shown at F was excluded from the trust's assessable income.

    Net non-primary production amount

    Show at this entry the net result of adding the partnership distributions of non-primary production income and the trust's share of non-primary production income included in the net income (for tax purposes) of other trusts, less deductions related to that income, plus the net amount of the franked distributions from trusts, less the deductions relating to the franked distributions from trusts.

    Write the total amount in the box at Net non-primary production amount. If this amount is a loss, print L in the box at the right of the amount.

    Share of credits from income

    Share of credit for tax withheld where ABN not quoted

    If the income shown at A, Z, B, R or F includes any share of amounts that have had tax withheld where an ABN was not quoted, show any share of credit for the tax withheld at C. The trust or partnership statement or distribution or advice should separately disclose this amount.

    Share of franking credits from franked distributions

    Show at D the trust’s share of any franking credits from a franking entity received indirectly through a partnership or other trust.

    Show franking credits received directly from a paying franking entity at M item 12.

    Do not show franking credits relating to a franked dividend received indirectly through a partnership or other trust if any of the following apply:

    • They were attributable to a distribution from a New Zealand franking company. If the trust received franking credits indirectly from a New Zealand franking company, see item 23 Other assessable foreign source income.
    • The holding period rule and related payments rule were not satisfied in relation to the dividend, for more information, see appendix 1.
    • FTDT has been paid on the dividend paid or credited by a company that has made an interposed entity election. The dividend is excluded from assessable income under section 271-105 of Schedule 2F to the ITAA 1936. A franking credit or tax offset cannot be claimed for any franking credit attached to that dividend, for more information about when FTDT is payable, see Family trust distribution tax.
    • Trustee beneficiary non-disclosure tax has been paid in respect of the dividend. A franking credit or tax offset cannot be claimed for any franking credit attached to that dividend.

    Share of credit for TFN amounts withheld from interest, dividends and unit trust distributions

    Unless an entity claimed an exemption or quoted a TFN, an investment body may withhold amounts from interest, dividends or income of a unit trust to which a beneficiary is presently entitled. These are called TFN amounts withheld. The current rate is 49% of the payment made.

    Show at E the trust's share of any credit for TFN amounts withheld from amounts of interest, dividends and income of unit trusts to which a beneficiary is presently entitled that are received from partnerships or other trusts. Credits for TFN amounts withheld are allowed in the assessments of the beneficiaries or trustees.

    Credit for TFN amounts withheld from payments from closely held trusts

    Where a beneficiary of a closely held trust does not provide their TFN to the trustee, the trustee may be required to withhold from payments or distributions.

    Show at O any amounts withheld by a trustee of a closely held trust because a TFN was not provided.

    Share of credit for tax withheld from foreign resident withholding

    Amounts may be withheld in Australia from some payments made to certain partnerships or trusts due to the operation of the foreign resident withholding measure. These payments relate to entertainment, sports activities, construction, related activities and casino gaming junket activities.

    Show at U the trust’s share of any foreign resident withholding credits received from partnerships or other trusts. Ensure this amount is included in the gross distribution amount shown at B Distribution from partnerships, less foreign income or R Share of net income from trusts, less capital gains, foreign income and franked distributions.

    Do not include a share of tax paid under section 98(4) from other trusts.

    Taxation of financial arrangements (TOFA)

    If the TOFA rules apply to the trust, include at item 8 Partnerships and trusts the trust's share of all primary production and non-primary production income distributed from partnerships or included in the net income (for tax purposes) of other trusts and deductions relating to such amounts. This includes amounts from financial arrangements subject to TOFA rules.

    Last modified: 31 Aug 2016QC 48243