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Trust distribution where franking credits exceed income

Discussion in 'Accounting, Tax & Legal' started by greyst, 10th Aug, 2008.

  1. greyst

    greyst Member

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    I am preparing a trust income tax return and am puzzled by how I handle franking credits.

    Here is the problem:
    Franked dividends = $7,000
    Franking credits = $3,000
    Assessable income = $10,000
    Deductions = $8,000
    Taxable income = $2,000

    Everything is to be distributed to one beneficiary and I'm wondering what that distribution should be given franking credits exceed taxable income.

    Do I distribute non-primary production income of $2,000 and franking credits of $3,000? Or do I distribute income of $2,000 and franking credits of $2,000? If the latter, what happens to the other $1,000 of franking credits?

    Thanks
     
  2. Following the market

    Following the market Member

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    trust distributions

    :eek:the answer is quite complex

    it will depend upon the date the shares that give rise to the dividend were acquired and whether or not a family trust election has been made.
     
  3. greyst

    greyst Member

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    Acquisition and family trust election

    With the exception of some shares acquired under DRP and one parcel acquired mid year (accounting for about 4% of trust investments), all shares were acquired between 1996 and 30 June 2007.

    A family trust election was made (in 2001, I think).

    Based on the sample numbers I provided, the trust has an accounting loss of $1,000 but taxable income of $2000. Confused!!

    Thanks for your help.
     
  4. Following the market

    Following the market Member

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    family trust

    the first thing you need to look at is the family trust election, the trust deed

    and the trust distribution minutes and make sure that the person who is to receive the income is eligible to receive the income.

    you also need to look at the definition of income in the trust deed.:eek:
     
  5. greyst

    greyst Member

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    Done that

    OK, I've looked at all those things.

    The person receiving the distribution is part of the family group, they've received distributions in the past. This is just an annual distribution that has occurred every year for the last 10 years.

    The deed defines income as income defined by the income tax act. There is a provision that lets the trustee meet expenses out of capital.

    Thanks for your help. What's next?
     
  6. greyst

    greyst Member

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    Any thoughts?

    Someone? Anyone?
     
  7. Rob G.

    Rob G. Well-Known Member

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    Assuming your deed allows a distribution ... this was alluded to in previous posts:

    Where you have at least $1 of "net income" for tax purposes, then the franking credits can flow through.

    (Subject to the 45 day rule, etc...)

    Cheers,

    Rob
     
    Last edited by a moderator: 11th Aug, 2008
  8. greyst

    greyst Member

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    Thanks

    Yes, the deed allows a distribution! Thanks for the answer. Certainly makes for a pleasing distribution to the beneficiary this year! Thanks again.