Australian Taxation of Trusts – Rates, Reductions, & Differences


The ITAA Div 6 Part 3 treat a trust as a flow-through vehicle rather than a taxable entity. However, trusts are defined as an entity for income tax purposes and in GST rules. A trustee can be taxed on income accumulated in the trust at the highest marginal rate. To ensure tax at the normal rate, the trustee can resolve at the end of each income year to distribute its income to the beneficiaries (to keep them presently entitled). Unless the beneficiary is a company (not a corporate trustee), then the corporate rate of tax will apply. Public trading trusts are also taxed at the corporate rate.


Net capital gains are included in the net income of a trust estate, the Capital Gains discount can be applied and there is also the small business 50% reduction discount. If a trust has a net capital loss for the income year, the loss can be carried forward, to determine the net capital gain of the trust estate for the following income year. The capital gains and franked distributions can be streamed to specifically entitled beneficiaries. Except for the attribution managed investment trusts, public trading trusts, and superannuation funds.


Differences in the treatment of tax consequences apply to whether a trust is a resident trust or non-resident trust, discretionary trust or unit trust (under CGT rules), fixed trust or non-fixed trust (under trust loss recoupment provisions). If a trust is both discretionary and fixed it is held to be a ”closely held trust” (subject to special reporting).

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