Introduction

These instructions will help you complete the Trust tax return 2013. They are not a guide to income tax law. You may need to refer to other publications.

When we say ‘you’ or ‘your business’ in these instructions, we mean either you as the trust that conducts a business, or you as the registered tax agent or trustee responsible for completing the tax return.

These instructions contain abbreviations for names or technical terms. Each term is spelt out in full the first time it is used and there is a list of abbreviations.

What’s new?

In 2012, the ATO undertook a review of business income tax returns in an effort to obtain a better balance between the community’s cost of compliance and the organisation’s information needs. The review explored the company, trust and partnership income tax returns and some associated schedules to identify opportunities to remove or refine the information collected.

The review has resulted in the following changes that affect the Trust tax return 2013.

The Personal services income schedule and the Capital allowances schedule have been decommissioned. A new set of information items relating to these regimes are now included at items 30 and 48 in the return.

The Capital gains tax (CGT) schedule has been redesigned and the former item 21 label H Did the CGT event relate to an FMIS? has been replaced with new label M Have you applied an exemption or rollover?

The following information items from the Trust tax return 2012 are not on the Trust tax return 2013:

• 5 label A Gross payments subject to foreign resident withholding (primary production)
• 5 Foreign resident withholding expenses (primary production)
• 17 Forestry management investment scheme ruling details
• 29 label Q Amount of tax spared foreign income tax offset
• 29 label I Interest to financial institution exempt from withholding under a DTA
• 29 label Y DTA country (code)
• 29 label D Section 128FA exempt interest paid
• 36 label K Proprietors’ funds
• 52 label F Small business and general business tax break
• 57 label V Deduction for environmental protection expenses.

Item 48 Capital allowances incorporates former items:

• 46 label N Intangible depreciating assets first deducted
• 47 label U Other depreciating asset first deducted
• 48 label O Termination value of intangible depreciating assets
• 49 label W Termination value of other depreciating assets
• 50 label P Deduction for project pool
• 51 label X Section 40–880 deduction
• 56 label S Landcare operations and deduction for decline in value of water facility.

Former item 54 label Q Interest expenses overseas and item 55 label S Royalty expenses overseas have been moved to item 29 Overseas transactions.

Private health insurance rebate and Medicare levy surcharge

From 1 July 2012, the private health insurance rebate and Medicare levy surcharge are income tested against three new income tiers. This means a beneficiary’s:

• entitlement to private health insurance rebate will be reduced if their income is over a certain amount, or
• rate of Medicare levy surcharge may increase if their income is over a certain amount

For more information, see Changes to private health insurance rebate and Medicare levy surcharge.

Net medical expenses tax offset

The net medical expenses tax offset is now income tested.

Where a trustee has paid medical expenses on behalf of a resident beneficiary out of trust assets, the amount a trustee will be entitled to claim as a tax offset will depend on the beneficiary’s family status and share of the trust net income to which the trustee is assessed under section 98.

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At the time of publishing these changes had not become law. For further information, go to www.ato.gov.au and search for Net medical expenses tax offset.

For more information, see T6 Total net medical expenses.

Dealings in registered emissions units under the Carbon Pricing Mechanism

The Clean Energy (Consequential Amendments) Act 2011 introduced Division 420 of the Income Tax Assessment Act 1997 (ITAA 1997). Broadly, this new division establishes a rolling balance treatment of registered emissions units (REU) for income tax with the following main features:

• The cost of an REU is deductible
• Any difference in the value of REUs held at the beginning of an income year and at the end of that year is reflected in taxable income, with
  • any increase in value included in assessable income
  • any decrease in value allowed as a deduction.
   

In the standard case where banked units are valued at cost, the rolling balance method has the effect of deferring the economic benefit of the deduction for the cost of the REU until the sale or surrender of the unit.

• A taxpayer can elect to value all REUs held at the end of an income year using the ‘first-in, first-out’ cost method, the actual cost method, or at market value.
• The valuation method chosen continues to apply but can be changed once at any time before the end of the 2014–15 income year after which a change will only be allowed after a method has been used for four years.
• The proceeds of selling an REU are assessable income.
• Special rules apply for ‘free carbon units’ issued under the Jobs and Competitiveness Program or issued to coal-fired electricity generators.
• Where a taxpayer surrenders an REU for a purpose unrelated to producing assessable income, the deduction for the cost is effectively reversed by including in assessable income an amount equal to the amount deducted for its acquisition.
• Expenditure incurred in establishing an offsets project under the Carbon Farming Initiative is not deductible under Division 420, but may be deductible under the other provisions of the income tax law.

The amount of a unit shortfall charge is not deductible under the income tax law.

Conservation tillage refundable tax offset

The government has introduced a refundable tax offset for purchase of an eligible no-till seeder (‘eligible seeder’) used in conservation tillage farming practices. Qualifying primary producers may be entitled to a refundable tax offset of 15% of the cost of an eligible seeder. The refundable tax offset is only available for eligible seeders installed ready for use between 1 July 2012 and 30 June 2015.

Where eligible, the trustee will claim the offset in the trust tax return for the year. The offset claim does not flow directly to beneficiaries of the trust.

For more information, see Conservation tillage refundable tax offset.

Related Party Debt and Limited Recourse Debt

The government announced in the 2012 Budget its intention to amend the law to provide a more consistent tax treatment for bad debts between related parties irrespective of whether they are members of a tax consolidated group. The measure will ensure that, where the debtor and creditor are associates and a corresponding debt is terminated (written-off) or forgiven after 7.30pm on 8 May 2012 the creditor will be denied tax relief for the bad debt written off and the corresponding gain to the debtor will also not be taxed. This will impact on entities that are associates but are not all wholly within the same tax consolidated group.

The limited recourse debt provisions will also be clarified. This will ensure tax deductions are not available for capital expenditure on assets that have been financed by limited recourse debt, to the extent that the taxpayer is not effectively at risk for the expenditure and does not make an economic loss.

At the time of publication these changes had not become law, however the Bill to amend the limited recourse debt provisions was before the parliament.

For further information, go to ato.gov.au and search for 'Bad debt' or 'Limited Recourse debt'.

Small business entities – increase in the instant asset write-off threshold, simplified depreciation and accelerated initial deduction for motor vehicles

The Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Act 2012 introduced a number of changes for small businesses with an aggregated turnover of less than $2 million applicable for the 2012–13 income year including:

• increasing the small business instant asset write-off threshold from $1,000 to $6,500
• allowing small businesses to claim an accelerated initial deduction for motor vehicles acquired in 2012–13 and subsequent years
• consolidating the long life small business pool and the general small business pool into a single pool to be written off at 15% in the year of allocation and 30% in following years.

For more information, see Small business entity concessions: simplified depreciation rules.

Personal tax changes (Household assistance program)

The main features of the personal tax reforms applicable from 1 July 2012 include the following:

• The tax-free threshold has increased to $18,200.
• The first and second marginal tax rates for residents have increased.
• The low income tax offset (LITO) maximum value has reduced with an increase to the LITO phase-out threshold and withdrawal rate.
• The pensioner tax offset is no longer available. Former pensioner tax offset (PTO) claimants and senior Australians (SATO) will now claim under the one tax offset titled Seniors and pensioners tax offset (SAPTO).
• If a taxpayer is entitled to both the SAPTO and Beneficiary tax offset (BTO) only one can be claimed: the offset that provides the greatest benefit to the taxpayer.
• The Medicare levy low-income threshold and limits increased so that individuals who do not earn enough income to pay income tax do not have to pay the Medicare levy.
• Marginal tax rates for non-residents have been amended to align with the tax changes for resident taxpayers.

Managed investment trusts – a new tax system

In the 2010–11 Budget, the government announced the intention to introduce a new taxation regime for Australian managed investment trusts (MITs) in response to the Board of Taxation’s report on its review of the tax arrangements applying to MITs. On 30 July 2012, the government announced the start date of the new MIT laws would be 1 July 2014.

In addition it was announced that the choice that MITs can make to apply the streaming changes enacted in June 2011 will be extended so that MITs can apply them to the 2012–13 and the 2013–14 income years.

The new regime announced by the Government proposes:

• allowing eligible MITs to use an attribution method of taxation (in lieu of the existing present entitlement to income method)
• including a de minimis rule to allow MITs to carry forward some under and over distributions into the next income year without adverse taxation consequences
• deeming as 'fixed trusts' those MITs that clearly define in their constituent documents the rights and entitlements of their beneficiaries, and provide relief from tax consequences that may arise where a trust changes its constituent documents to meet the clearly defined rights requirement
• allowing unit holders to make, in certain circumstances, adjustments (including upward) to the cost base of their unit holdings to eliminate double taxation that may otherwise arise
• replacing the corporate unit trust rules with an arm’s length rule, to be included in the public trading trust provisions, and
• amending the 20% tracing rule for public unit trusts so that it does not apply to super funds and exempt entities that are entitled to a refund of excess imputation credits.

At the time of preparing these instructions, legislation had not been enacted to give effect to the measure.

For more information, see New taxation system for managed investment trusts.