If you receive a distribution from a trust, you may have capital gains tax (CGT) consequences. If the amount by which an asset’s selling price exceeds its initial purchase price. Trusts include managed funds, such as property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced trusts.
Distributions from trusts can include different amounts, but only the following types of amounts are relevant for CGT purposes:
• distributions of the trust’s net income for tax purposes that includes a net capital gain
• distributions or other entitlements described as being referable to a specific capital gain or gains
• distributions of non-assessable amounts.
Legislative amendments were made on 29 June 2011 to clarify the tax treatment of capital gains of a trust. Where permitted by the trust deed, capital gains can be effectively streamed to beneficiaries for tax purposes by making them specifically entitled to the capital gains. These new rules apply from the 2010-11 income year.
The trustee should advise you whether the CGT discount, the small business 50% active asset reduction, or both, have been taken into account in working out the amount of the trust net capital gain.
If your distribution from a trust includes an amount described as tax-free, CGT concession amount, tax-exempted amount or tax deferred amount, special rules may apply to these non-assessable payments. While a non-assessable payment from a trust may not need to be included as trust income, it may be relevant in determining the amount of any net capital gain you must declare or it may affect the cost base and reduced cost base of your units or trust interest.
Trustee choice to be assessed on capital gains
Commencing for the 2010-11 income year, the trustee of a resident trust may choose (if permitted by the trust deed) to be assessed on a capital gain of the trust. This is similar to (and will replace) the choice available to the trustee of a testamentary trust under the law prior to the 2010-11 amendments, but is not limited to those trustees.
This change to the law allows a trustee to choose to pay tax on behalf of a beneficiary that is unable to immediately benefit from the gain. It is only the trustee that can make this choice.
Capital Gains Tax liabilities, concessions and exemptions change depending on your individual circumstances, for this reason it is important to seek advice from a professional. Here at The Quinn Group our experienced team of accountants can assist you in regards to Capital Gains Tax. For more information submit an online enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to book an appointment.