Error: Prior-year capital loss automatically applied against a gain disregarded under the 15-year exemption.
Overview
When a trust makes a capital gain that qualifies for the small business 15-year capital gains tax (CGT) exemption, LodgeiT automatically reduces the total capital gain to $0 for lodgment purposes.
As a result, the exempt capital gain is not automatically transferred to the beneficiary’s Individual Income Tax Return (ITR) through the Beneficiary Distributions Statement.
This is expected system behaviour.
Why is the capital gain not reported in F1 and F4?
Generally, capital gains disregarded under the small business 15-year exemption are not included in the capital gains reported in the tax return.
LodgeiT allows you to record the exempt capital gain for record-keeping purposes. However, when the 15-year exemption applies, the total current-year capital gains amount is reduced to $0 for lodgment purposes.
Consequently:
Capital Gains section: The amount at J – Total current year capital gains is $0.
Beneficiary Distributions Statement: No capital gain is automatically distributed to the beneficiary because the reportable capital gain is $0.
Individual Income Tax Return: The exempt capital gain is not automatically transferred from the trust return.
Can I manually enter the capital gain in F1 and F4?
You can switch the Beneficiary Distributions Statement to Manual and attempt to enter the amounts in F1 and F4. However, doing so may trigger validation errors because the manually entered amounts do not reconcile with the capital gains calculated in the trust return.
We recommend reviewing the applicable ATO reporting requirements before overriding the automatically calculated amounts.
How do I report the exempt capital gain to the beneficiary?
If the exempt capital gain needs to be reflected in the beneficiary’s tax records, it may need to be entered manually in the beneficiary’s Individual Income Tax Return, subject to the applicable tax treatment and reporting requirements.
Before entering the amount, ensure that the beneficiary’s return correctly reflects the capital gain and the applicable 15-year exemption. Do not report the exempt gain as a taxable capital gain without accounting for the exemption.
Important: The correct treatment depends on the trust distribution and the applicable ATO requirements. Consult the ATO instructions or a registered tax professional if you are unsure which amounts must be reported.
Further information
For more information, refer to the ATO’s Individual Supplementary Tax Return 2026 Instructions – Question 18: Capital gains: