Detailed instructions for completing your Fringe Benefit Tax Return
The major sections of a trust tax return typically include:
- Trust details: Information about the trust itself, such as the trust’s name, tax file number (TFN), and the accounting period for which the return is being lodged.
- Income: Details of the various types of income earned by the trust, including distributions from other trusts, dividends, interest, rent, and business income.
- Deductions: Information on allowable deductions against the trust’s income, such as management and administration expenses, investment expenses, and any other relevant deductions.
- Tax offsets and credits: Details of any tax offsets or credits the trust is entitled to claim.
- Net income or loss: Calculation of the trust’s net income or loss for the year after accounting for income and allowable deductions.
- Distributions to beneficiaries: Details of the distributions made to beneficiaries, including the type and amount of income distributed.
- Declarations and signatures: A section for the trustee to declare that the information provided is true and correct, and to sign the tax return.
To complete the Trust tax return accurately, it is recommended to refer to the Trust tax
return instructions for the relevant year. 2023- https://www.ato.gov.au/forms-and-
The Trust tax return will typically require details such as the trust’s income, deductions,
beneficiaries, and distributions. It will also include schedules for capital gains, losses,
and other relevant tax items.
When a trust has business activities, make to sure to collect all necessary financial
records related to the trust’s business activities, including income statements, expense receipts, asset purchase details, and any other relevant documentation.
For a trust that receives a capital gain, follow these steps:
- Calculate the Capital Gain or Loss: Determine the capital gain or loss from the disposal of the trust’s capital assets. This involves subtracting the cost base of the asset from the sale proceeds. If the asset was held for more than 12 months, the trust may be eligible for the 50% capital gains tax (CGT) discount.
- Complete the Trust Tax Return: Fill in the necessary sections of the trust tax return form, including the Capital gains schedule’s if required. The trust’s netcapital gain must be included in the trust’s net income.
- Distribute the Capital Gain to Beneficiaries: If the trust deed allows, the trust may distribute the capital gain to its beneficiaries. The beneficiaries will then include their share of the capital gain in their own tax returns. If the capital gain is distributed, the trust is not liable to pay tax on that portion of the gain.
- Beneficiaries Report the Capital Gain: Beneficiaries who receive a share of the capital gain must report it in their individual tax returns. If they are entitled to the CGT discount, they can apply it when calculating their own net capital gain.
- Lodge the Trust Tax Return: Lodge the trust tax return with the Australian Taxation Office (ATO) by the due date. If lodging online, use the ATO’s myTax system or a registered tax agent’s services. If lodging by paper, send the completed tax return to the ATO’s postal address.
- Pay Any Tax Due: If the trust has a tax liability, ensure that payment is made by the due date. If the capital gain has been fully distributed to beneficiaries, they will be responsible for paying any tax due on their share of the gain.
Remember to keep all records related to the trust’s capital assets, including purchase
and sale documents, as well as records of any capital improvements, to support the
calculations made in the tax return. If you are unsure about any aspect of the process,
consider seeking advice from a tax professional or the ATO.
For a trust that receives Personal Services Income (PSI),
- Determine if PSI Rules Apply: First, determine if the PSI rules apply to the income received by the trust. PSI is income that is mainly a reward for an individual’s personal efforts or skills. If more than 50% of the income received under a contract is for an individual’s personal efforts or skills, then all income for that contract is PSI.
- Personal Services Business (PSB) Tests: If the PSI rules apply, check if the trust passes any of the personal services business (PSB) tests. These include the results test, the unrelated clients test, the employment test, and the business premises test. If the trust passes one of these tests, the PSI rules may not apply to the income.
- Attribution of PSI: If the PSI rules apply and the trust does not pass any of the PSB tests, the PSI is attributed to the individual who performed the services. This means the income is treated as if it was earned by the individual and not the trust for tax purposes.
- Complete Trust Tax Return: When completing the trust tax return, include the PSI in the assessable income of the trust. If the PSI is attributed to an individual, it should be reported in the individual’s tax return, not the trus’s return.
- Deductions: The trust may be entitled to claim deductions against the PSI if they are directly related to earning the income and meet the basic rules for deductibility. However, if the PSI is attributed to an individual, the trust cannot claim these deductions.
- Lodgment: Lodge the trust tax return with the ATO by the due date. Ensure that all relevant sections are completed accurately, including the PSI information.
- Record Keeping: Maintain proper records to substantiate all income and deductions claimed by the trust. This includes contracts, invoices, receipts, and any other relevant documentation.
- Consult Guidance: Refer to ATO publications, such as Taxation Ruling TR (year) and the guide for personal services income, for detailed instructions and examples on how to apply the PSI rules and complete the tax return.
When preparing a trust tax return that includes depreciation, the following steps should generally be taken:
- Calculate Depreciation: Determine the depreciation for the income year for each depreciable asset. This involves identifying the assets that the trust holds and which are subject to depreciation, determining the effective life of each asset, and choosing the appropriate depreciation method (prime cost or diminishing value).
- Choose Depreciation Method: Decide on the method of depreciation that will be used for each asset. The prime cost method spreads the cost evenly over the effective life of the asset, while the diminishing value method accelerates the deduction over the early years of the asset’s life.
- Apply Simplified Depreciation Rules (if eligible): If the trust is a small business entity with an aggregated turnover of less than the threshold (e.g., $10 million for certain income years), it may be able to use simplified depreciation rules. This includes the instant asset write-off for assets costing less than a specified amount and pooling of assets for simplified calculations.
- Record Depreciation in Accounts: Record the depreciation expense in the trust’s accounts. This will reduce the trust’s profit for the year.
- Complete Relevant Sections of the Tax Return: In the trust tax return, complete the sections that relate to depreciation. This typically includes:
- Item 10: Deductions for depreciating assets (if not using simplified depreciation rules).
- Item 12: Small business entity simplified depreciation (if eligible).
When preparing a trust tax return that includes a tax offset, the process involves
several steps to ensure that the trust’s tax obligations are accurately reported and that it claims any offsets to which it is entitled.
Here’s a general outline of the process:
- Determine Eligibility for Tax Offsets:
- Review the trust’s financial activities and determine if it is eligible for any tax offsets. Common tax offsets for trusts may include the franking credits from dividends, foreign income tax offsets, and credits for tax withheld where the trust has not provided its tax file number to investment bodies.
- Calculate Taxable Income:
- Calculate the trust’s taxable income, which includes assessing all income streams, deducting allowable expenses, and considering any capital gains or losses.
- Apply Applicable Tax Offsets:
- Apply any tax offsets for which the trust is eligible. For example, if the trust has received franked dividends, include the franking credits as a tax offset. If the trust has paid foreign tax, it may be eligible for a foreign income tax offset.
- Complete Relevant Items on the Tax Return:
- On the trust tax return, complete the relevant items where tax offsets are reported. For example, franking credits are typically reported at the franking credits item, and foreign income tax offsets are reported at the foreign income tax offset item.
- Attach Additional Information if Required:
- If the trust is claiming a tax offset that requires additional information or documentation (such as a statement of franking credits received), ensure that this information is prepared and attached to the tax return.
- Review and Reconcile:
- Review the trust’s tax return to ensure that all income, deductions, and offsets are accurately reported. Reconcile the tax offsets claimed with the trust’s financial records.
- Lodge the Tax Return:
- Lodge the trust tax return
- Pay Any Tax Due or Receive Refund:
- After the tax return is processed, the ATO will issue a notice of assessment. If the trust owes tax, ensure that payment is made by the due date. If the trust is entitled to a refund due to the tax offsets, the ATO will issue a refund.
It’s important to note that the specific tax offsets available and the reporting
requirements can vary depending on the trust’s circumstances and the tax year. Always
refer to the latest ATO instructions and guidelines for the relevant financial year when
preparing the trust tax return. If you are unsure about any aspect of the process, consider seeking advice from a tax professional.
Dividend refers to a distribution of profits that a company pays to its shareholders. It is
a portion of the company’s earnings that is returned to the shareholders as a reward for
their investment in the company. Dividends are typically paid out regularly, often on a
quarterly or annual basis, and are usually expressed as a certain amount per share.
when the trust has earned dividends, follow these steps:
- Download the Trust Tax Return Form: Access the “Trust tax return (for a given year)”.
- Gather Dividend Information: Collect all dividend statements from each Australian company, corporate limited partnership, corporate trading trust, public trading trust, and listed investment company that paid dividends or made distributions to the trust from 1 July to 30 June.
- Use Instructions for Help: Refer to the ATO latest “Trust tax return instructions” to assist you in completing the tax return accurately.
- Complete the Dividends Section: In the tax return, fill out the section related to dividends. Include all dividends and distributions that were paid or credited to the trust by Australian companies.
- Report Dividend Deductions: If the trust incurred expenses in earning dividend income, complete the section for dividend deductions. This may include management fees, interest on money borrowed to purchase shares, and other costs related to managing investments.
- LIC Capital Gains: If the trust received dividends that included a Listed Investment Company (LIC) capital gain amount, you can claim a deduction of 50% of the LIC capital gain amount as shown on the dividend statement.
- Review Pre-filled Information: If any dividend information is pre-filled in the tax return, verify it against your records and add any missing information.
- Calculate Taxable Income: Add up all the dividend income and subtract any allowable deductions to determine the trust’s taxable income from dividends.
- Complete Other Sections: Fill out the rest of the tax return, including other types of income and deductions relevant to the trust.
- Review the Return: Double-check all entries for accuracy and completeness.
- Lodge the Tax Return: Lodge the completed tax return with the tax authority by the due date.
- Keep Records: Retain copies of the tax return and all supporting documents for the trust’s records.
When preparing a trust tax return that includes interest income, the trustee must report all interest earned by the trust during the income year.
Here’s the process for reporting interest on a trust tax return:
- Gather Information: Collect all financial statements and documents that detail the interest income earned by the trust. This includes interest from bank accounts, term deposits, bonds, and other interest-bearing investments.
- Calculate Total Interest: Sum up the total interest income received or credited to the trust during the income year.
- Determine Deductible Expenses: Identify any expenses incurred in earning the interest income. This could include bank fees or investment management fees directly related to the interest-earning accounts or investments.
- Complete the Trust Tax Return: Enter the total interest income in the appropriate section of the trust tax return. The specific label for interest income may vary depending on the tax return form and the year. Generally, it is reported at item 10 – Gross Interest on the Trust Tax Return.
- Report Deductible Expenses: If there are any deductible expenses related to earning the interest income, these should be reported in the deductions section of the trust tax return.
- Beneficiary Reporting: If the interest income is distributed to the beneficiaries, report each beneficiary’s share of the interest income in the statement of distribution. The beneficiaries will then include this amount in their individual tax returns.
When a trust is a beneficiary of another trust, the process involves:
- Determine Present Entitlement: The trustee of the distributing trust must determine if the beneficiary trust is presently entitled to any income. Present entitlement generally means that the beneficiary trust has an indefeasible right to demand and receive payment of the income.
- Trustee Resolution: Before the end of the income year (usually June 30), the trustee of the distributing trust should make a resolution to distribute income to the beneficiary trust. This resolution should specify the amount or percentage of income to which the beneficiary trust is entitled.
- Statement of Distribution: The trustee of the distributing trust must complete a statement of distribution, which includes details of the income distributed to the beneficiary trust.
- Tax Return Lodgment: The trustee of the beneficiary trust must lodge a tax return for the trust, declaring all income, including distributions received from other trusts.
- Assessable Income: The distributed income is generally considered assessable income of the beneficiary trust and must be included in its tax return.
- Streaming of Capital Gains and Franked Distributions: If the distributing trust has made a specific entitlement to capital gains or franked distributions, the beneficiary trust may also need to account for these amounts separately in its tax return.
- Tax Offsets and Credits: The beneficiary trust may be entitled to tax offsets or credits, such as franking credits from franked distributions received. These should be claimed in the beneficiary trust’s tax return.
- Inter-Trust Distribution: If the beneficiary trust is also a distributing trust, it may pass on the income to its beneficiaries. This process involves similar steps as above, including determining present entitlement, making trustee resolutions, and providing statements of distribution to its beneficiaries.
- Record Keeping: Both the distributing and beneficiary trusts must keep records of all transactions, including trustee resolutions, statements of distribution, and tax return documentation.
- Compliance with Division 7A: If the beneficiary trust is a private company or has an associate that is a private company, care must be taken to ensure compliance with Division 7A regarding loans, payments, and forgiven debts to shareholders or their associates.
- Tax Payments: The beneficiary trust must pay any tax due on the income it has received, including distributions from other trusts, by the due date specified by the ATO.
When a trust is involved in a partnership, the process for reporting income and managing tax obligations involves several key steps:
- Report Partnership Income or Losses: The trust must report its share of income or losses from the partnership. This includes any profits distributed to the trust as well as any losses incurred by the partnership that are attributable to the trust.
- Document Partnership Details: The trust needs to maintain detailed records of the partnership agreement, its share in the partnership, and any distributions or contributions made during the income year.
- Calculate Net Income: The trust must calculate its net income from the partnership, which includes its share of the partnership’s net income or loss. This calculation should take into account any allowable deductions that the trust can claim related to its investment in the partnership.
- Complete Relevant Tax Return Items: In the trust tax return, the trustee must complete the relevant items that pertain to partnership income. This includes reporting the trust’s share of the partnership’s net income or loss and any tax offsets or credits it is entitled to.
- Claim Deductions and Tax Offsets: The trust may be eligible to claim deductions for expenses incurred in earning the partnership income. Additionally, the trust may be entitled to tax offsets, such as the small business income tax offset if the partnership qualifies as a small business entity.
- Distribute Income to Beneficiaries: If the trust distributes its share of the partnership income to its beneficiaries, the trustee must provide each beneficiary with a statement of distribution that outlines their share of the net income and any tax offsets or credits.
- Beneficiary Reporting: Beneficiaries must include their share of the trust’s net income from the partnership in their personal tax returns. They must also claim any tax offsets or credits they are entitled to based on the information provided in the statement of distribution.
When a trust receives foreign income, the process for preparing and lodging a trust tax return involves several steps to ensure compliance with Australian tax laws:
- Identify Foreign Income: Determine all sources of foreign income received by the trust during the income year. This includes foreign interest, dividends, rent, royalties, and capital gains on overseas assets.
- Calculate Gross Foreign Income: Sum up the total gross foreign income before any foreign taxes are paid. Convert all foreign income into Australian dollars (AUD) using the appropriate exchange rate as per the ATO’s guidelines.
- Foreign Income Tax Offset (FITO): If foreign tax has been paid on the income, the trust may be entitled to a foreign income tax offset. Calculate the offset amount, which is generally limited to the Australian tax payable on the foreign income.
- Assessable Foreign Income: Include the gross foreign income in the trust’s assessable income. This is reported in the trust tax return along with other types of income.
- Deductible Expenses: Identify and deduct any allowable expenses incurred in earning the foreign income. This may include management fees, interest expenses, and foreign taxes paid.
- Tax Treaties: Consider the impact of any relevant double tax agreements (DTAs) Australia has with the countries from which the foreign income is sourced. DTAs may provide relief from double taxation and affect how the income is reported.
- Controlled Foreign Companies (CFCs): If the trust has an interest in a CFC, include any attributed income from the CFC in the trust’s assessable income according to the CFC rules.
- Foreign Investment Funds (FIFs): If the trust has investments in FIFs, calculate and report any income attributed from these investments.
- Complete Relevant Sections of Tax Return: Fill in the relevant sections of the trust tax return form, including the foreign source income and foreign assets or property items.
- Statement of Distribution: If the foreign income is distributed to beneficiaries, report each beneficiary’s share of the foreign income in the statement of distribution. Beneficiaries will need to include this in their individual tax returns and may also be entitled to a share of the FITO.
When preparing a trust tax return that includes rental income, the trustee must report all rental income earned by the trust during the income year.
Here’s the process for reporting rental income on a trust tax return:
- Gather Rental Income Information: Collect all financial statements and documents that detail the rental income earned by the trust. This includes rental statements from property managers, bank statements showing rent deposits, and records of any cash payments received.
- Calculate Total Rental Income: Sum up the total rental income received by the trust during the income year.
- Determine Deductible Expenses: Identify any expenses incurred in earning the rental income. This could include property management fees, advertising costs, repairs and maintenance, interest on loans for the rental property, and depreciation of assets within the property.
- Complete the Trust Tax Return: Enter the total rental income in the appropriate section of the trust tax return. The specific label for rental income may vary depending on the tax return form and the year. Generally, it is reported at item 20 – Rent on the Trust Tax Return.
- Report Deductible Expenses: If there are any deductible expenses related to earning the rental income, these should be reported in the deductions section of the trust tax return.
- Consider GST Implications: If the trust is registered for GST and the rental income is subject to GST, do not include the GST amount in the rental income reported on the tax return. Similarly, do not include the GST amount in the rental expenses if the trust is entitled to claim input tax credits.
- Negative Gearing Considerations: If the trust has a net rental loss (where the deductible expenses exceed the rental income), the loss may be offset against other income earned by the trust, depending on the trust’s circumstances and the application of any relevant tax laws.
The process for a trust tax return that includes a Forestry Managed Investment
Scheme (FMIS) involves several steps to ensure that the income and deductions
related to the FMIS are correctly reported. Here are the general steps that should be taken:
- Determine the Trust’s Involvement in FMIS: Identify the trust’s involvement in any Forestry Managed Investment Schemes, including the amount invested and the income derived from the FMIS.
- Gather Relevant Information: Collect all necessary documentation related to the FMIS, such as the initial investment documents, annual financial statements from the FMIS, and any receipts for expenses incurred.
- Calculate Income from FMIS: Determine the income generated by the FMIS, which may include periodic returns on the investment or proceeds from the harvest of forestry products.
- Identify Deductible Expenses: Identify any expenses related to the FMIS that are deductible. This may include management fees, maintenance costs, and other expenses directly related to the operation of the FMIS.
- Complete Trust Tax Return: Fill out the trust tax return, ensuring that the FMIS income and deductions are reported in the appropriate sections. This may involve completing specific items or schedules related to primary production or investment income.
- Apply Applicable Tax Provisions: Apply any specific tax provisions that relate to FMIS investments. This may include concessional tax treatment or specific rules regarding the timing of deductions.
The process for a trust tax return that includes other income involves several steps to ensure accurate reporting and compliance with tax laws. Here’s a general outline of the process:
- Gather Records: Collect all financial records related to the trust’s operations, including documentation for all sources of income. ‘Other income’ can include various types of earnings not covered under standard categories like interest, dividends, or rental income.
- Determine Trust Type: Identify the type of trust (e.g., discretionary, unit, family, testamentary) as this will influence the tax treatment of its income and deductions.
- Calculate Income: Total all income received by the trust during the financial year. This includes ‘other income’ which may consist of foreign income, capital gains, or income from closely held trusts.
- Deduct Allowable Expenses: Identify and deduct allowable expenses related to earning the trust’s income. This may include management fees, investment advisory fees, and other relevant costs.
- Determine Taxable Income: Calculate the trust’s net income or loss for the year by subtracting allowable deductions from the total income.
- Allocate Income to Beneficiaries: Depending on the trust deed, the trustee will allocate income to beneficiaries. The trust’s net income will be taxed either in the hands of the beneficiaries or in the trust if the income is not distributed.
- Complete Trust Tax Return: Fill out the trust tax return form, ensuring all relevant sections are completed, including the ‘Other income’ section. Include all necessary schedules and statements.
- Lodge the Tax Return: Lodge the trust tax return with the ATO by the due date. If using a tax agent, different deadlines may apply.
- Issue Statements to Beneficiaries: Provide each beneficiary with a statement of their share of the trust’s net income if it is distributed, as they will need this information to complete their personal tax returns.
- Pay Any Tax Due: If the trust has a tax liability, ensure payment is made by the due date. If the trust is unable to pay by the due date, contact the ATO to discuss payment plan options.
Reconciliation for trust tax form works
The reconciliation process for a trust tax return primarily involves comparing and
adjusting the net income or profit/loss from the financial statements to arrive at the
trust’s taxable income or tax loss for the year. This process adjusts the accounting profit
to reflect only those income and deductions which are assessable or allowable under
the income tax laws.
Here’s how the reconciliation typically works:
- Start with Net Income: Begin with the net income or loss for the trust as per the accounting financial statements.
- Add Back Non-Deductible Expenses: Add back any expenses that have been deducted in the accounting profit but are not deductible for tax purposes.
- Subtract Non-Assessable Income: Subtract any income that is included in the accounting profit but is exempt from tax or is non-assessable for other reasons.
- Include Assessable Income: Add any assessable income that is not included in the accounting profit but is taxable under income tax laws. This could be due to timing differences, income attributed to the trust under certain provisions, or other assessable amounts not recognized in accounting income.
- Deduct Allowable Deductions: Deduct any expenses that are allowable for tax purposes but not deducted in the accounting profit. This may include tax depreciation (decline in value of depreciating assets), deductible donations, and other deductible expenses.
- Resulting Taxable Income or Loss: The result of the above adjustments will give you the taxable income or tax loss for the trust for that year.
- Distribution to Beneficiaries: Any taxable income needs to be allocated to the trust’s beneficiaries as per their legal entitlement or trustee’s discretion unless the trust is a fixed trust.
- Tax Return Labels: Fill the required labels on the trust tax return form to reflect the reconciliation items, such as non-deductible expenses, assessable income not included, exempt income, and taxable income.
These adjustments are made because the calculation of accounting profit or loss is
based on accounting standards, which may differ from the tax laws that determine what
is assessable income or allowable deductions for tax purposes.
The specific details and line items that require attention may vary depending on the
trust’s circumstances and the particular transactions during the year. The Trust tax
return instructions issued by the ATO provide detailed guidance on completing trust tax
returns and the reconciliation process.
