Fixed Trust Distribution Resolutions & CGT Event E4

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As we approach 30 June, and begin drafting year-end trust distribution resolutions, with section 100A risks looming for discretionary trusts, it’s also important to remember to consider the issues associated with fixed trust resolutions. In particular CGT event E4.

CGT event E4 happens where the trustee of a trust makes a payment to a taxpayer in respect of the taxpayers’ unit or interest in the trust, and some or all of the payment is not included in the taxpayers’ assessable income. The consequences are that the cost base of the recipient’s unit or interest is reduced (but not below nil). Any excess over the cost base will give rise to a capital gain to the beneficiary.

One example of where such a payment may occur is where there is an excess of income of a trust for accounting purposes, over its net income for tax purposes. The following consequences may arise:

  • Where trust income is defined to be accounting income, this may give rise to CGT event E4 in that particular income year.
  • Where trust income is defined as section 95 / taxable income, this may give rise to a CGT event at some point in the future, with respect to the excess of accounting income over taxable income, which is essentially retained for trust law purposes. In this case, it is important to keep adequate records of what this amount is so that it can be dealt with correctly at the appropriate time.
  • It is important to ‘read the deed’ to identify how the trust allows income to be defined.

Want more information?

If you have any queries or concerns in relation to Fixed Trust Distribution Resolutions and CGT Event E4, please get in touch with our team.

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While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

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