Trusts
Model Answers
Question 1 — Trust income v net income
Trust income is determined under the deed/trust-law framework; s 95 net income is a tax-law amount. The taxable capital gain can enter s 95 net income even if it is not trust income available for distribution under the deed. Division 6 then connects beneficiaries’ proportional entitlements to net income, with special rules for capital gains.
Question 2 — Present entitlement
Present entitlement is tested by reference to the relevant year-end position. Carter confirms that later events cannot retrospectively rewrite the statutory state of affairs at the end of the income year. Deed and resolution deadlines must therefore be checked before assuming s 97 applies.
Question 3 — Fixed beneficiary
If the resident adult beneficiary is presently entitled to a 40% share of trust income and no special streaming provision alters the result, s 97 is the starting point for including the corresponding share of trust net income in the beneficiary’s assessable income.
Question 4 — Capital gain streaming
Subdivision 115-C must be considered, including whether the beneficiary is specifically entitled to the capital gain and whether the deed/resolution validly supports the allocation. The trust’s generic income distribution clause cannot simply replace the statutory streaming rules.
Question 5 — Section 100A
The facts suggest a reimbursement arrangement because the beneficiary’s entitlement may be connected with another person obtaining the economic benefit. Analyse the agreement, purpose/tax reduction conditions, the statutory concept of benefit and any ordinary family/commercial dealing exclusion, using s 100A and TR 2022/4.
Question 6 — Trust losses
Schedule 2F imposes integrity tests because losses should not be trafficked between economic owners. Changes in control, beneficial interests, distributions and business activities may be relevant. The trust must establish satisfaction of the applicable loss tests before deduction.