Scenario: The Trustee has completed the tax return as follows:

5 R Total Net Non-Primary Income                                                              -22,155 8 Z Share of net income from trusts                                                              14,137 20 Net Australian income or loss - other than capital gains            -8,018 21 A Net capital gain                                                                                               35,577 27 U Tax losses carried forward to later income year                         12,341 53 Income of the trust estate                                                                            71,153

*Note the trust return form should also complete label 25 Tax losses deducted and label 26 Total net income or loss, which are both currently missing from the information below.

The Trustee has then correctly completed the statement of distribution as follows:

Share of income of the trust estate W = 71153 Share of income Non-primary production B = -8018 Net capital gain F = 35577

The validation rule relevantly requires that the total of the amounts at N, A, B, U, F, G and H on the statement equals the amount at item 26 Total net income or loss.

It is correct that a trustee cannot distribute an overall loss to a beneficiary.  In those circumstances there will be no income of the trust estate to which any beneficiary can be presently entitled.

Similarly, if the trust has overall income, but has a nil or negative net income for tax purposes, it cannot distribute that tax loss to beneficiaries. In this case, however, the Trust has both positive overall distributable income and positive overall net income.

Therefore, the beneficiary will need to complete their own supplementary income tax return and include:

Non-PP - Share of net income from trusts, less capital gains, foreign income and franked distributions  - 8018

They also then include the capital gain at label 18 which will net off to the total share of net income - grossed up to take into account their individual capital gains situation.