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Trust and capital gain

Discussion in 'Accounting, Tax & Legal' started by somebodyhere, 6th Oct, 2009.

  1. somebodyhere

    somebodyhere Member

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    Hi,

    Just wondering if a trust can be used to separate a capital gain to get the CGT discount.
    For example,
    Trust has $100 capital gain which is eligible for CGT discount -> trust's net capital gain is $50 -> all this is distributed to Beneficiary A
    Beneficiary A has $100 capital loss for investments under his own name

    When beneficiary A lodges his tax return, will he have a $50 net capital loss to carry forward (being his own $100 loss and $50 net gain from trust) or $0 net capital loss (being his own $100 loss and $100 grossed-up gain from trust)?

    The above question is basically a lead-up to the following ultimate question.
    If two beneficiaries (A & B) both invest (in shares and probably property later on) and have a family trust, who generally should hold which investments?
    Obviously, by holding it under a trust, losses from investments on behalf of A can be offset against gains from investments on behalf of B, without needing to wait for next year's gain (which may not even occur). However the discount CGT effect may also come into play.
    For example, maybe the trust should hold the long-term investments (over 12 months) and the beneficiaries should hold the short-term investments and high-risk investments (which may generate losses)??
     
    Last edited by a moderator: 6th Oct, 2009
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Somebodyhere,

    I'm sure our resident accountants will say that capital gains discount is calculated after losses are netted off.

    Cheers,

    Dan

    PS I'm not a tax accountant, speak to your tax adviser or registered accountant before making a decision.
     
  3. Rob G.

    Rob G. Well-Known Member

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    Where the Trustee of a discretionary trust keeps account of separate types of income, it is possible to stream net income subject to the deed.

    The attributed discount capital gain is "grossed up" in the hands of the beneficiary before applying the beneficiaries own capital losses, then discounted, s.115-215(2) ITAA97.

    i.e. Trust net income $50 (discount CG) attributed to A

    A's assessable income is $100 attributed (gross capital gain), less personal capital loss of $100 = nil capital gain and zero capital loss to carry.

    Just the same as if the beneficiary had earned the discount capital gain in their own name.

    Cheers,

    Rob
     
  4. somebodyhere

    somebodyhere Member

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    Location:
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    That's what I thought as well, thanks for the clarification.
     
  5. somebodyhere

    somebodyhere Member

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    Is it possible to distribute different proportions of different types of capital gains to different beneficiaries?
    For example, if the trust's net capital gain is $100, and is made up of $50 discounted capital gain and $50 non-discounted capital gain (i.e. the grossed-up capital gain is $150):
    Can the trustee distribute $50 discounted capital gain ($100 grossed-up gain) to beneficiary A, and $50 non-discounted capital gain to beneficiary B?
     
  6. Rob G.

    Rob G. Well-Known Member

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    You can stream NET capital gains if your deed allows.

    e.g. Discount net capital gains to individuals and non-concessional net capital gains to corporate beneficiaries (because they don't qualify for the discount anyway).

    You must use up trust capital losses against trust capital gains before distribution.

    Cheers,

    Rob
     
  7. somebodyhere

    somebodyhere Member

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    Location:
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    Thanks for that.