Since the year ended 30 June 2011 the ability to stream capital gains and dividends was introduced.
- Where a trust estate has a net capital gain, a franked distribution or a franking credit for an income year, the position before the income year ending 30 June 2011 was that these amounts were brought into the calculation of the net income, section 95 of the Income Tax Assessment Act 1936 (ITAA36) of the trust estate for the income year and that net income was attributed to the beneficiaries proportionately according to the presently entitled share of the trust income of the trust estate. That is no longer the position.
- Where a trust estate has a net capital gain in the income year ending 30 June 2011 or later, the Tax Laws Amendment (2011 Measures No. 5) Act 2011 (Cth) applies.
- In very broad terms, where a trust estate has a net capital gain and ‘net income’ for an income year, a capital gain that is not reduced to nil by the application of the method statement in section 102-5 of the ITAA97 is taken out of the operation of Division 6 of Part III of the ITAA36: Division 6E of that Part.
- Instead, its treatment is governed by the provisions of Division 115 of the ITAA97, and in particular Subdivision 115-C of that Act.
- The position is that:
- to the extent to which a beneficiary is ‘specifically entitled’ to an amount of the capital gain (before applying the method statement), an appropriate part of the gain (after applying the method statement) is attributed to the beneficiary as a capital gain.
- to the extent to which there is no beneficiary ‘specifically entitled’ to an amount of the capital gain (before applying the method statement), beneficiaries have an appropriate part of the gain (after applying the method statement) attributed to them on a pro rata basis according to their share of the distributable income of the trust estate.
- If there is no distributable income of the trust estate for that income year (or there is part of the distributable income to which no beneficiary is presently entitled), the trustee is taxed on the amount of the capital gain (or the appropriate part of the capital gain) after applying the method statement.
Contact MGS Private for advice on trust streaming.
