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Trust Capital Gain but overall loss

Discussion in 'Accounting, Tax & Legal' started by Gary, 21st Jan, 2010.

  1. Gary

    Gary New Member

    Joined:
    21st Jan, 2010
    Posts:
    4
    Location:
    Beerwah, Qld
    I have a standard family discretionary trust that has a capital gain to which teh 50% general and 50% small business discount applies which because of the age of the beneficiaries will reduce the taxable component to zero.

    Other then the capital gain, the trust has an operating loss which is less then the grossed up capital gain i.e. there is a overall net profit in the trust.

    Questions are:
    1. Can the operating loss be distributed to an individual? (I think yes as there is net income in the trust)
    2. What is the net affect in the individual tax return? i.e. does the grossed up capital gain get offset against the operating loss before the appication of the CGT discounts, effectively wiping out any tax benefit of the trust losses?
     
  2. Intellikev

    Intellikev Active Member

    Joined:
    16th Dec, 2009
    Posts:
    28
    Location:
    Brisbane Qld
    Trust Capital Gain but Overall Loss.

    Hi Gary, the net earnings of the trust can be distributed. An example of this is represented by: Operating Loss ($5,000)
    Income - Gross Capital Gain $7,000
    Amount for Distribution $2,000

    This Capital Gain of $2,000 is then elligible for the 50% discount in the hands of the beneficiaries and taxed at their marginal rates.

    Hope this helps.
     
  3. PJCA

    PJCA Member

    Joined:
    30th Oct, 2009
    Posts:
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    Location:
    Adelaide
    The trust could not distribute for tax purposes in above example, a $7,000 gross gain = $3,500 gain after applying discount at trust level. Disregarding small biz concession for a minute - this leaves a tax loss of $1,500 in trust ($5,000 loss + $3,500 cap gain). Cannot be distributed. Situation is similar if you factor in small biz cgt concession.

    To answer your questions:

    1) Can distribute operating loss where a higher net capital gain is being distributed also

    2) Operating loss is offset after cgt discounts have been applied.

    This is not advice. Can be a very complex area depending on your circumstances.
     
  4. Rob G.

    Rob G. Well-Known Member

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    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Yep ... your assessable income includes your *NET* capital gain. s.102-5 ITAA97

    Cheers,

    Rob