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Re: Distribution from Trust

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Megastar

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Hi,

I'm struggling with a few issues and would be grateful for some help.

 

If there is financial loss in a discretionary trust say of $500, and if there are franking credits of say $2000. Then there will be loss in financials and taxable income of ($2,000-$500) = $1,500 in tax return.

Now trust deed say trust law income is as determined in the taxation. My query is 

 

1. Can distribution be made in trust's financials (as there is loss in books, since franking credit doesn't get recorded in books)

2. Can we distribute the taxable income to beneficiary in the tax return, when there is no financial distribution due to loss in financials or should be report the taxable income as no beneficiary entitled and get it taxed in the hand of trustee.

3. And when no distribution could be made, will the franking credit get lost.

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Anonymous

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Unfortuneatley as your trust made a loss, it can not distribute that loss to the beneficiaries and the franking credits are lost. It is all covered on the ATO website. 

Below I have made reference to the appropriate ATO website pages and quoted the relevant page sections that apply.

 

 Trust-losses 

If a trust makes an overall loss in an income year, the loss is retained in the trust - there is no amount of net income available for distribution.   

 

Receiving-a-distribution-through-a-partnership-or-trust 

Note: - If a trust has no net income or makes a loss, the benefit of the franking credit is lost. That is, there is no tax offset.

(Franking credits and how beneficiaries of a trust can use them as tax offsets when trust income can be distributed, are also explained on this page) 

 

If you need further information call the ATO on 13 28 66

 

 

 

 

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Anonymous

Replies 2

Unfortuneatley as your trust made a loss, it can not distribute that loss to the beneficiaries and the franking credits are lost. It is all covered on the ATO website. 

Below I have made reference to the appropriate ATO website pages and quoted the relevant page sections that apply.

 

 Trust-losses 

If a trust makes an overall loss in an income year, the loss is retained in the trust - there is no amount of net income available for distribution.   

 

Receiving-a-distribution-through-a-partnership-or-trust 

Note: - If a trust has no net income or makes a loss, the benefit of the franking credit is lost. That is, there is no tax offset.

(Franking credits and how beneficiaries of a trust can use them as tax offsets when trust income can be distributed, are also explained on this page) 

 

If you need further information call the ATO on 13 28 66

 

 

 

 

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Megastar

Replies 1

Hi, thanks for the reply, but the loss in only in the financials but not in the tax return (due to franking credit included in the taxable income in the tax return). 

Now my query was who gets the taxable income of $1500 (in above example), as per the tax return. Beneficary or trustee. 

Thanks

Anonymous

Replies 0

For the franking credits to flow through to the beneficiaries both they and the trust must be qualified person . There are three ways in which this can be attained.  

 

From your simple example it appears that the total franking credits for individual shareholders is less than $5,000 and is therefor exempt from the qualified persons / related payments rule.

 

If the trustee is permitted in the trust deed rules then they can distribute the income to the beneficiaries. Whether the trustee can distribute income to the beneficiaries and whether it does so is purely up to the trustee to look into and to decide.

 

Please note that other provisions of the legislation may apply such as the dividend washing integrity rule and the general anti-avoidance rule against franking credit trading and streaming.

 

Please refer to - https://www.ato.gov.au/Forms/Trust-tax-return-instructions-2017/?page=34

 

This subject is not straight forward and I suggest that you apply for an ATO private ruling so you get it right.

 

 

Further information can be obtained by phoning the ATO on 13 28 66

 

or you can apply for a private ruling - Applying-for-a-private-ruling

 

 

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