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Discretionary trust - franking credits distribution

Discussion in 'Accounting, Tax & Legal' started by confused, 18th Jul, 2012.

  1. confused

    confused New Member

    Joined:
    29th May, 2009
    Posts:
    3
    Location:
    Melbourne
    Hi,
    Can someone provide a clarification on this for me?
    I am the trustee of a discretionary trust that invests in companies for dividends. The trust has had expenses (interest) that means that there will be more franking credits compared to the income. Example as below.

    Dividends: $70
    Franking: $30 (Note the franking credit ratio is 70%:30%)
    Income: $100

    Expense: $20
    Net Income: $80

    The net income consists of $30 franking credit and $50 income.
    The ratio of franking credits is now (62.5%:37.5%).

    Can I still distribute the entire franking credit amount with the income? or would I have to limit the distribution of franking credits to be in the same ratio (pre expense)? i.e. $50 income and $21.42 franking credit. The rest of the credits is held for next year.

    I suspect that I have to distribute the entire amount as the trust needs to pass all income to the beneficiaries.

    If you could let me know it'd be great.

    confused