Capital gains made by a trust
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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 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.
Interim changes to the taxation of trusts
Capital gains made by a trust
Exclude net capital gains from item 13
If you are a beneficiary of a trust, you may be entitled to (or may have received) an amount described as a share of the trust's net capital gain. However, you do not include this amount at item 13 Partnerships and trusts on your tax return (supplementary section). Instead, you are treated as having made an extra capital gain (or capital gains) following the steps described.
Item 13 on the tax return for individuals (supplementary section)
Question 13 in the Tax return for individuals (supplementary section) 2015 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. [Only exclude so much of the trust's net capital gain that would otherwise form part of your share of the trust income.]
Last modified: 08 Jul 2015QC 44187