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  • CGT concessions obtained by a trust

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    There are special rules that mean concessions obtained by trusts can be passed on to the beneficiaries of the trust.

    You may be a beneficiary who is entitled to a share of the income of a trust that includes a capital gain reduced by the CGT discount or the small business 50% active asset reduction. In this case, you need to gross up your capital gain by multiplying it by two. You multiply by four your share of any part of the net capital gain received from a trust that the trust has reduced by both the CGT discount and the small business 50% active asset reduction.

    Note
    Grossed-up gains

    If the trustee has already shown the grossed-up amount of the discounted capital gain on your distribution statement, that is the amount you show in your tax return.

    You do not gross up any part of the net capital gain you received from a trust that the trust has not reduced by one of these concessions. In this case, you are treated as having a capital gain equal to your share of that part of the trust net capital gain.

    This latter capital gain and the grossed-up amounts are treated as extra capital gains you made.

    Note
    No double taxation

    You are not taxed twice on these extra capital gains because you did not include your capital gains from the trust at the Partnerships and trusts income item (item 12 for individuals).

    The method of calculating a net capital gain is then applied to these extra capital gains to determine your net capital gain.

    Firstly, reduce the extra capital gains by any capital losses you have not used to reduce other capital gains. Secondly, if there are any grossed-up capital gains remaining, reduce these by one or both of the concessions originally used by the trust-that is, the CGT discount (except for company beneficiaries) and/ or the small business 50% active asset reduction.

    In applying capital losses, you will probably find that you receive the best result by deducting them from capital gains distributed from the fund in the following order:

    1. 'other' capital gains
    2. indexation method capital gains, and then
    3. discount method capital gains.

    Example
    Distribution where the trust claimed concessions

    Serge is a beneficiary in the Shadows Unit Trust. He receives a distribution of $2000 from the trust. This distribution includes $250 of net income remaining after a $1000 capital gain made by the trustee was reduced by the CGT discount and the small business 50% active asset reduction.

    Serge has also made a capital loss of $100 from the sale of shares.

    He calculates his net capital gain as follows.

     

    $

    Gross up the share of trust net capital gain ($ 250) by multiplying by 4

    1000

    Deduct capital losses

     100

     

    900

    Apply the CGT discount of 50%

     450

     

    450

    Apply the 50% active asset reduction

     225

    Net capital gain

    225

    Serge will show $1000 at label H item 17 in his tax return, which is his total current year capital gain.

    His net capital gain to be shown at label A is $225. He will show a trust distribution of $1750 ($2000-$250) at label U item 12.

    Note
    Applying the concessions

    Remember that you must use the same method as the trust to calculate your capital gain.

    This means you cannot apply the CGT discount to indexation method or 'other' method capital gains distributed from the trust.

    Also, you can only apply the small business 50% active asset reduction to grossed-up capital gains to which the trust applied that concession.

    Last modified: 31 Aug 2010QC 16195