Looking over my trust tax returns and financial statements from previous years there seems to be 3 different types, or amounts, of trust income. 1. First there is the Accounting income which shows the profit (from the trusts financial statements). 2. Then there is the Taxable income which appears on the trusts tax return (which is the Accounting income with any franking credits added and/or previous years tax losses deducted). 3. And finally there is the (Trust Law?) net income. Examples: 1. Accounting income as shown on Profit and Loss statement: Income received: $20K Expenses (cash): $10K Non-cash deductions (depreciation): $8K Accounting Income = $2K profit 2. Taxable income as shown on tax return: Income received: $20K Expenses (cash): $10K Non-cash deductions (depreciation): $8K Franking credits: $1K Taxable income = $3K 3. Trusts net income in bank account: Income received: $20K Expenses (cash): $10K Trusts net income = $10K cash From what I can gather the Accounting income is Section 97 income and is what the beneficiaries are entitled to in the end of year trust distribution. The Taxable income is Section 95 income. The trustee would base the distributions on the Accounting income of $2K, for example $1K to beneficiary A and $1K to beneficiary B. Under the ‘Proportionate Approach’ used by the ATO each beneficiary would be entitled to 50% of the Taxable income (being the same proportions) so each beneficiary would actually be taxed on a distribution of $1.5K rather than the $1K shown in the distribution minute. I don’t really have any questions, just after any comments to see if my understanding is correct. Apart from in the trusts tax return you can’t show the full $3K being distributed to the beneficiaries because according to the trusts Accounts the trust only made a $2K profit and is $1K short (the accounts won’t balance). The accounts also show the full amount of $10K received as cash in the trusts bank account.