Determine your share of the capital gain of the trust
You will need to determine whether you have a share of each capital gain made by the trust that has been included in the trust's net income for tax purposes. For every capital gain you have a share of, your statement of distribution or advice from the trust should advise you of:
- your share of that gain
- how much of the net income of the trust for tax purposes relates to each gain (or what is the 'attributable gain' to which your share relates)
- the type of capital gain to which your share relates and the method used by the trustee to calculate it (including any CGT discount or small business concessions applied), and
- your share of any credit for a foreign resident capital gains withholding amount.
Your share of a capital gain is any amount of the capital gain to which you are specifically entitled plus your adjusted Division 6 percentage share of any amount of the capital gain to which no beneficiary is specifically entitled.
These rules do not apply to a distribution of a capital gain by an AMIT. See Managed investment trusts for more information.
Divide by the total capital gain
That amount is then divided by the total capital gain to give you your ‘fraction’ of the total capital gain.
Multiply your fraction of the capital gain by the trust's taxable income relating to the capital gain
Your fraction is then multiplied by the net income for tax purposes of the trust that relates to the capital gain. The result is your ‘attributable gain’.
In certain circumstances where the trust's net capital gain and total net franked distributions exceed the net income of the trust for tax purposes, the amount of the trust's taxable income relating to the capital gain is rateably reduced. This ensures that beneficiaries and the trustee cannot be assessed on more than the total net income of the trust.
Extra capital gains you are taken to have made
If you are a beneficiary who is taken to have an 'attributable gain' (your share of a trust’s capital gain included in its net income for tax purposes), you are taken to have made extra capital gains in addition to any other capital gains you may have made from your own CGT events.
In order to work out the amount of extra capital gains that are taken into account in working out your own net capital gain, you will need to know the method used by the trustee in calculating the trust’s capital gains that were included in the trust’s net capital gain. Your statement of distribution or advice should show this information.
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 have advised you what your share is or you may need to contact them to obtain details.
Trust distributions to which the CGT discount or the small business 50% active asset reduction apply
Your 'attributable gain' is then grossed up as appropriate for any CGT concessions (the general CGT discount or the small business 50 per cent reduction) applied by the trustee to that capital gain. You have an extra capital gain equal to the grossed-up amount.
Where the trustee reduced the capital gain by the CGT discount or the small business 50% active asset reduction, you need to gross up your 'attributable gain' by multiplying it by two. This grossed-up amount is an extra capital gain.
You multiply by four your share of any capital gain 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 the capital gain has not been reduced by either the CGT discount or the small business 50% active asset reduction, then your 'attributable gain' is an extra capital gain.
You are then able to reduce your extra capital gains by any current or prior year capital losses that you have, and then apply any relevant discounts to work out your own net capital gain.
No double taxation
You are not taxed twice on these extra capital gains because you did not include your capital gains from trusts at item 13 on your tax return (supplementary section).
Example 16: Applying the trust provisions
Step 1: determine the beneficiary’s share of the capital gain of the trust
The Cropper Trust generated $100 of rent and a $500 capital gain (which was a discount capital gain). The trust also had a capital loss of $100. The trust deed does not define ‘income’ and therefore capital gains do not form part of the trust income. As a result, the income of the trust estate is $100 (being an amount equal to the rent), whereas the net income of the trust for tax purposes is $300. The $300 net income for tax purposes comprises the $200 net capital gain (which is the $500 capital gain less the $100 capital loss, reduced by the 50 per cent CGT discount) plus the $100 rent income.
The trustee resolves to distribute $200 related to the capital gain (after absorbing the capital loss) to Shane and the $100 of rent to Andrea.
Shane is specifically entitled to 50 per cent of the $500 capital gain because he can reasonably be expected to receive the economic benefit of 50 per cent ($200) of the $400 capital gain remaining after accounting for the $100 capital loss. Shane’s share of the capital gain equals the amount to which he is specifically entitled namely $250 (50 per cent of the $500 capital gain).
Andrea’s share of the capital gain is also $250 because, being entitled to all of the $100 income of the trust (none of the capital gain being treated as trust income), she has an adjusted Division 6 percentage of 100 per cent and there is $250 of the $500 capital gain to which no one is specifically entitled.
Step 2: divide by the total capital gain
Shane divides his share of the capital gain ($250) by the total capital gain ($500) and therefore has a fraction share of 1/2 of the capital gain.
Andrea divides her share of the capital gain ($250) by the total capital gain ($500) and therefore also has a fraction share of 1/2 of the capital gain.
Step 3: multiply the beneficiary’s fraction of the capital gain by the trust’s taxable income relating to the capital gain
The net income of the trust for tax purposes relating to the capital gain is $200.
Shane’s attributable gain is $100 ($200 × 1/2).
Andrea’s attributable gain is $100 ($200 × 1/2).
Step 4: gross up the amount for CGT discounts applied by the trustee
Shane is required to double his attributable gain of $100 to an extra capital gain of $200 because the trustee had applied the 50 per cent CGT discount.
Andrea similarly doubles her attributable gain to $200 which is her extra capital gain.
Both Shane and Andrea will take their extra capital gain of $200 into account in working out their own net capital gain at 18. Shane and Andrea are individuals entitled to claim the 50% CGT discount. Neither have other capital gains or capital losses of their own to apply against their extra capital gains. Therefore, after applying the 50% CGT discount to their $200 extra capital gain, they will have made a net capital gain of $100 ($200 extra capital gain × 50% = $100). They will write $100 at A item 18 Capital gains on their tax returns (supplementary section). They also write $200 (which is $100 grossed up) at H item 18.
Note that Shane and Andrea's statement of distribution or advice from the trust advised each of them that the trust had made a capital gain of $500, that only $200 of this had been included in the net income of the trust estate for tax purposes, that the 50% discount had been applied and that their share of the gain was $250. Alternatively, it could have advised them that they each had an extra capital gain of $200 that was a discount capital gain.End of example
Example 17: Distribution where the trust claimed concessions
Serge is the sole beneficiary in the Shadows Unit Trust. His statement of distribution or advice from the trust shows that his 100% share of the net income of the Shadows Unit Trust for income tax purposes was $2,000. The $2,000 includes a net capital gain of $250 (made of a $1,000 capital gain that was reduced by the CGT discount and the small business 50% active asset reduction).
His statement advises that he has a $1,000 (100%) share of the $1,000 capital gain.
Because he has a 100% share of the capital gain, Serge will have an 'attributable gain' of $250 (that is, the whole of the net income of the trust estate for tax purposes that relates to the gain).
Due to the application of the CGT discount and the small business 50% active asset reduction, Serge then grosses up his 'attributable gain' of $250 by multiplying it by 4 to $1,000 which is his extra capital gain.
Serge has also made a capital loss of $100 from the sale of shares.
He calculates his own net capital gain as follows:
Serge’s extra capital gain (that is, his $250 attributable gain × 4)
Deduct capital losses
Capital gains before applying discounts
Apply the CGT discount of 50%
Apply the 50% active asset reduction
Net capital gain
Serge will write $1,000 at H item 18 on his tax return (supplementary section), which is his total current year capital gain. His net capital gain to be written at A item 18 on his tax return (supplementary section) is $225. He will write a trust distribution of $1,750 ($2,000 − $250) at U item 13 on his tax return (supplementary section).End of example
Applying the concessions
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.
You can only apply the small business 50% active asset reduction to grossed-up capital gains to which the trust applied that concession.