Family Discretionary Trust Distributing Capital Gains to Unit Trust

Hi everyone

I am just wondering if there are any experienced tax adviser who can answer this question for me please. I have a client who has a Unit Trust and a Discretionary Family Trust. The Unit Trust has made a capital loss in the LAST financial year and the Discretionary Trust has made a capital gain THIS year.

Now I was just wondering if the Discretionary trust can distribute this capital gain to the Unit trust so it gets used by prior year capital loss of the unit trust.

Any advise on this would be much appreciated.

 

Sounds like you are not a lawyer - clients don't 'have' trusts. They may be beneficiaries, trustees, appointors or unit holders etc.

First the trustee has to determine if the unit trust is a beneficiary of the discretionary trust and if the trustee has the power to make a distribution.

Then seek advice on infringing the laws against perpetuities if the unit trust has a potential vesting date later than the vesting date of the DT.

Then consider the tax issues

see s265-5 to 272-140 ITAA97 on deducting prior year losses. there are about 5 tests to consider.

It is possible in theory.

 

That is possible. Read the deed.

You might have to make a family trust election.

 

The unit trust also needs to be considered in further detail especially with regards to trust loss provisions. If the UT has a SMSF unitholder there may be a concern preventing the issue also. And the application of Part IVA. eg If the UT holds a property interests for example then the sudden receipt of passive discretionary income that offsets a carried fwd loss seems like a potential Part IVA concern.