ATO ID 2002/964: Capital gains tax: trusts: calculation of beneficiary's net capital gain
Date of decision: 2 September 2002
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Can a beneficiary reduce the share of a trust's net income that is included in their assessable income under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936), by its prior year capital losses?

Decision
o. The beneficiary can only apply their capital losses against the extra capital gains that they are taken to have made under Subdivision 115-C of the Income Tax Assessment Act 1997 (ITAA 1997).

Facts
An Australian resident beneficiary, who is not under a legal disability, is presently entitled to a share of trust income in the 2002 income year. The beneficiary's share of the net income of the trust for the 2002 income year is attributable to a discount capital gain of $5 million. The beneficiary had a $15 million net capital loss from an earlier income year. The beneficiary calculated their net capital gain for the year as follows: The beneficiary calculated a loss for the 2002 income year as follows:

Reasons for decision
Summary: A beneficiary who is not under a legal disability and who is presently entitled to a share of the income of a trust must include in their assessable income their share of the net income of the trust estate (section 97 of the ITAA 1936). Subdivision 115-C of the ITAA 1997 sets out rules that affect the calculation of a beneficiary's net capital gain if the beneficiary is assessed on a share of the net income of the trust which includes a capital gain. Section 115-215 of the ITAA 1997 treats a beneficiary as having capital gains in addition to those they have from a CGT event happening. For each part of a trust capital gain that was reduced by the CGT discount and which is included in the beneficiary's income under section 97 of the ITAA 1936, the beneficiary is treated as having made a capital gain equal to twice that amount (paragraph 115-215(3)(b) of the ITAA 1997). Subsection 115-215(6) of the ITAA 1997 provides a beneficiary with a deduction to the extent that a capital gain has been included in assessable income under section 97 of the ITAA 1936. This deduction ensures that the beneficiary is not taxed twice on the trust capital gain (ie under section 97 of the ITAA 1936 and under Subdivision 115-C of the ITAA 1997). In this case, the beneficiary should calculate their net capital gain for the 2002 income year as follows The beneficiary's taxable income/loss for the 2002 income year is calculated as follows:

Legislative references: Income Tax Assessment Act 1936 section 97
Subject references: Capital gains tax Trusts CGT discount Net capital gain