Australian Trust is given dividend as company shares with franking credits

Hi, please don't answer "this is why people should use accountants they're not capable" type answers I'm the trustee and record keeper (AUSTRALIA).

This year for the very first time my Australian Trust is given $664 worth of Australian publicly listed shares that also come with $285 in Australian franking credits instead of an actual real cash payment as its yearly dividend.

By the end of the Australian tax year of 30th June, I am to distribute the trust income including Australian franking credits to the beneficiary but as the trust has only received $664 dollars worth of shares and $285 in franking credits, no actual physical real cash, how do I treat the above distribution to the beneficiary in the set of accounts when there's no cash, only shares to distribute?

Taking a long term view Ideally I'd want the shares to remain in the trust and be allowed to grow in value, not distribute them out to the individual tax payer.

However am I better to change the DRP arrangement back to a cash situation and elect to have all future Australian dividends paid in real cash rather than in shares or is there another way I can treat this type of transaction, say distribute a non cash present entitlement somehow to the beneficiary so they can somehow utilise the franking credit benefit? Sounds complex having to set up loan accounts so anyone else who's come across a similar issue here in Australia that'd be willing to help me out would be very appreciated.

 

DRPs are taxable income too. Capacity to pay a distribution isnt itself a requirement for tax purposes in every case. A mere entitlement is the issue. You (actually the trustee/s) must make the beneficiary entitled. That involves at least two steps....resolution and allocation. But you would have already done that so just transfer that basis to the tax return.

Just ensure that the financial records for the trust and the tax return distribution statement and the trust resolutions are consistent with the net trust income and the beneficiary tax return/s. Distribution statement needs to consider type of beneficiary. Their age, residency, entity type and whether excepted or not.

 

Who gave the trust shares?
Why?

If the trust received franking credits it must have received dividends as well.

If the trustee doesn't pay the income to the beneficiaries there are 2 things that could happen:
tax at the top marginal rate, or
a UPE created

 

Dr shares at cost 664. BSheet
CR dividend income 664. PNL
To record income that is re-invested into shares

Dr distribution of net profit 664. PNL
Cr unpaid present entitlement beneficiaries 664 BSheet

Hope that makes sense. But that is how you record it. Tax law has other issues. The trust deed as well - you need the accounting and tax bit to work hand in hand.