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Trust distribution - taxable much less than accounting

Discussion in 'Accounting, Tax & Legal' started by Hillview, 13th Jun, 2011.

  1. Hillview

    Hillview Member

    Joined:
    1st Nov, 2010
    Posts:
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    Location:
    Perth, WA
    Will call the association with this tomorrow anyway but interested in the accountants views. I have a client that has an accounting profit of $24K, and a taxable profit of $200.00. The reconciliation items are largely debtors and tax small business break depreication. The deed says income is s95 income. My issue is if I distribute proportionally, I distribute $24K of accounting income to the kids. The deed allows me to distribute according to s95 also, which only has distribution of $200.00 allowable. One methid suggested is to create a capital reserve account, distribute the allowable distribution of $200 to the kids in the accounts, and then the remainder to the reserve account, i.e. if it is not income per s95, then it must be capital.
    This also has negatives as the reconciliation item is debtors so it is pretty hard to argue that is not in revenue account. Basically I am going around in circles. The main issue I have is that if I do distribute proportionally, this means $24K going to the kids from an accounting point of view, the deed only allows me to distribute $200. If I take the other view and use a capital reserve, then proprtionally doesn't that mean I have not distributed some income. If anyone has had this, would appreciate some comment.
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    You post is a bit confusing.

    You say the deed specifies trust income as s.95 "taxable income". Therefore by definition the accounting income would be the same.

    Cheers,

    Rob
     
  3. Hillview

    Hillview Member

    Joined:
    1st Nov, 2010
    Posts:
    9
    Location:
    Perth, WA
    Trust Income

    Thanks for the reply Rob. I have since confirmed the distribution and yes it has gone to reserve. The problem with having the financial accounts same as Income Tax is it has the small business tax break, so where does the other side go?? It is basically a ficticious amount. Again thanks for replying but problem solved.