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When specific entitlement can't be established

Last updated 12 October 2020

Specific entitlement can't be established for some amounts, including notional, zero amounts and franking credits. In some situations, specific entitlement can't be established for the full amount of discounted capital gains without making beneficiaries entitled to trust capital.

Notional or zero amounts

Zero amounts

A beneficiary can't be specifically entitled to an amount of a capital gain or franked distribution if there is no amount referable to the capital gain or distribution remaining in the trust (for example, because the gain or distribution has been reduced to zero after subtracting expenses).

But franked distributions may be pooled, allowing all directly relevant expenses to be offset against the total of all franked distributions received by a trust.

Notional amounts

Generally, a beneficiary can't be specifically entitled to a purely notional capital gain as it isn't possible to receive financial benefits that are referable to a notional gain. An example of a notional capital gain is any part of a capital gain for tax purposes that exceeds the actual capital gain made for trust purposes as a result of the market value substitution rules applying.

Franking credits

A beneficiary can't be made specifically entitled to franking credits, which are a notional amount and can't be streamed separately to the franked distribution. To get the benefit of franking credits, the beneficiary must be entitled to a share of a franked distribution.

Discounted capital gains

Some trust deeds define trust income as equal to the net income of the trust (commonly known as an income equalisation clause). Other trust deeds empower the trustee to determine that trust income is equal to the net income of the trust.

In this case, if a trust makes a capital gain that qualifies for the 50% CGT discount, only half the gain will form part of trust income.