Example: Working out your share of your trust's instalment income
Jill conducts a clothing business as a sole trader. She is also one of three beneficiaries of a discretionary trust operating a building business. As we have notified Jill of an instalment rate, she is required to pay PAYG instalments.
Jill reports and pays her PAYG instalments to us every quarter using an activity statement. Jill works out her PAYG instalments using Option 2 (instalment rate x instalment income).
To do this she first needs to work out her proportion of instalment income from the trust, and the amounts she has earned in her own capacity.
To work out her proportion of the trust's instalment income, Jill needs to know the amounts for A, B and C of the formula. She can obtain the first two amounts from the trustee, or from the trust's tax return for the most recent year for which she has an assessment, as shown below.
Jill's assessable income from the trust for the last income year is 45,000. This is shown at item 54 label B on the trust's tax return (Share of income – Non primary production).
The amount Jill includes at B in the formula above is the trust's gross ordinary income. This is the total of the amounts shown at the following items on the trust's tax return:
5 Business income and expenses.
The amount is $200,000 at label H (Other business income)
8 Partnerships and trusts.
The amount is $4,000 at label B (Non-primary production - Distribution from partnerships, less foreign income)
The amount is $5,400 at label F (Gross rent)
10 Forestry managed investment scheme income
The amount is nil - label G is left blank
11 Gross interest, including Commonwealth Government loan interest
The amount is $230 at label J
The amount is $56 at label L (Franked amount)
14 Other Australian income.
The amount is $230 at label O
23 Other assessable foreign source income, other than income shown at Item 22.
The amount is nil - label B is left blank
31 Taxation of financial arrangements.
The amount is nil - label M and N are left blank
Taxation of financial arrangements (TOFA)
As the trust in this example is a mature TOFA entity, only the net TOFA income needs to be included in instalment income. Jill calculates the net TOFA income by first reducing her instalment income by the value of gross TOFA income that has been received. Then she adds back the net TOFA amount. The net TOFA amount is calculated as TOFA gains (label M) less TOFA losses (label N). Jill includes the result as it is a positive amount.
The total trust instalment income for the last income year, as shown at the above items on the trust's tax return, is $209,686.
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 ) x $69,400 = $14,893
Jill should add $14,893 to her instalment income from her clothing business when working out her instalment income for the period.
End of example