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Capital gains made by a trust

Last updated 18 February 2018

Since 2011, in relation to capital gains, the general trust taxation provisions in Division 6 of the Income Tax Assessment Act 1936 (Division 6) give way to specific rules in Division 115-C of the Income Tax Assessment Act 1997. These rules ensure that, where permitted by the trust deed, the capital gains of a trust (other than an AMIT) can be effectively streamed to beneficiaries for tax purposes by making them 'specifically entitled' to those gains. Generally, a beneficiary will be considered specifically entitled to an amount of a capital gain if the beneficiary has received (or can reasonably be expected to receive) an amount referrable to that gain, and certain recording conditions are satisfied.

A beneficiary specifically entitled to a capital gain will generally be assessed in respect of that gain, regardless of whether the benefit they receive or are expected to receive is income or capital of the trust.

Capital gains to which no beneficiary is specifically entitled will be allocated proportionately to beneficiaries based on their present entitlement to income of the trust estate (excluding amounts of capital gains and franked distributions to which any entity is specifically entitled). This proportion is known as the beneficiary's 'adjusted Division 6 percentage'. If there is some income to which no beneficiary is entitled (apart from capital gains and/or franked distributions to which any entity is specifically entitled) the trustee may be assessed under section 99 or 99A of the ITAA 1936.

The trust provisions also allow the trustee of a resident trust to choose to be assessed on a capital gain, provided no beneficiary has received or benefited from any amount relating to the gain during the income year or within two months of the end of the income year.

From 2010–11, MITs have been able to choose whether to apply these rules. From 2017–18, this choice will no longer be available.

Item 13 on the tax return for individuals (supplementary section)

Question 13 in the Tax return for individuals (supplementary section) 2017 tells you to exclude net capital gains from the amount of trust income you write at U item 13 on your tax return (supplementary section). In your statement of distribution or advice, the trust should state your share of the trust’s net capital gain. Exclude only so much of the trust's net capital gain that would otherwise form part of your share of the trust income.