When total net income or loss of the trust less franking credits is less than franked distributions plus net capital gains, a reduction is required under sections 115-225(3) and 207-37(3).
Streaming trust Capital Gains and Franked Distribution
When total net income or loss of the trust less franking credits is less than franked distributions plus net capital gains, a reduction is required under sections 115-225(3) and 207-37(3).
Below is the ATO reference link for the Trust Distribution Issue: Interim changes to the taxation of trusts.
https://www.ato.gov.au/general/trusts/in-detail/distributions/streaming-trust-capital-gains-and-franked-distributions/
The legislation was changed in 2012 and we have proved our software has been performing correctly in this aspect in the last couple of years.
Australian and Foreign Source Net Income
There is no legislative reference to quote here. We were told by the ATO that the foreign income (and attributable foreign income and NZ franking credits and PP income etc.) have to maintain their character when distributed and that the non-PP income is basically a plug figure (without doing this, the figures in the beneficiary/partner return gets distorted). This is reinforced by the instructions:
Other assessable foreign source income H
Show each beneficiary’s share of other assessable net foreign source income included in the net income of the trust for tax purposes. Except for relevant trusts that have made beneficiaries specifically entitled to amounts of franked distributions or capital gains, this amount is generally worked out by multiplying a beneficiary's percentage share of trust income by the total of the trust's other assessable net foreign source income.
For trusts that have made beneficiaries specifically entitled to franked distributions or capital gains, you generally work out a beneficiary's share of assessable net foreign source income by multiplying the total of the trust's other assessable net foreign source income by their adjusted Division 6 percentage share. Show whole dollars only.
The total amounts at H from all completed statements of distribution must equal the amount of net foreign source income shown at V Net item 23 on the trust tax return
The instructions from the ATO provide that: “The total amounts at H from all completed statements of distribution must equal the amount of net foreign source income shown at V Net item 23 on the trust tax return.“ If the amount at 23V is a loss, then the amounts at the statement of distribution must be a loss. Net foreign source income has been allowed to be a loss for some time now. The situation is different if the trust is in an overall loss, but that is not the case here or in the example provided. In the current situation, the beneficiary has a share of net income and that needs to be apportioned per the instructions. This is how returns have been prepared for some time and is particularly important for determining the beneficiaries’ entitlements to things like PP averaging, foreign income tax offsets, etc. If you disagree with the instructions, then either you or we will need to take it up with the ATO and get the instructions changed. If we do take it up with the ATO, we don’t expect a quick response as there are significant ramifications if this treatment were to change (think of the PP and FITO consequences).
To summarise, Access APS software is currently distributed as follows:
Franked distributions will be distributed in accordance with s 207-37 (pre-determined);
Capital gains will be distributed in accordance with s 115-225 (pre-determined);
Other type of income except NPP will remain as is (pre-determined); &
NPP will be the balancing figure.
If you have different scenarios with distributions, we request you to please call ATO on 13 72 86 FC and they should able to guide you.