Introduction

These instructions will help you complete the Trust tax return 2014. They are not a guide to income tax law. You may need to refer to other publications.

When we say you or your business in these instructions, we mean either you as the trust that conducts a business, or you as the registered tax agent or trustee responsible for completing the tax return.

These instructions contain abbreviations for names or technical terms. Each term is spelt out in full the first time it is used and there is a list of abbreviations.

What’s new?

Small business concessions: changes to simpler depreciation rules

On 17 December 2013, the government announced that it would make changes to small business concessions for assets acquired from 1 January 2014. At the time of printing these changes had not become law. Go to ato.gov.au/newlegislation for information about the progress of this legislation.

Pre-existing foreign losses

Prior to 2013–14, transitional rules restricted deductions for the foreign loss component of a pre-existing tax loss. From 2013–14 onwards, these deduction limits do not apply. For more information on pre-existing foreign losses, see Changes to foreign loss quarantining and foreign tax credit calculation rules - overview.

Limited recourse debt

The limited recourse debt provisions have also been recently amended to clarify that tax deductions are not available for capital expenditure on assets that have been financed by limited recourse debt, to the extent that the taxpayer is not substantively or effectively at risk for the capital expenditure funded by the limited recourse debt. This law change is also effective from 7.30pm on 8 May 2012.

Managed investment trusts – a new tax system

In the 2010–11 Budget, the government announced the intention to introduce a new taxation regime for Australian managed investment trusts (MITs) in response to the Board of Taxation’s report on its review of the tax arrangements applying to MITs.

On 13 May 2014, the government announced the start date of the new tax system would be deferred until 1 July 2015. It was also announced that MITs, and other trusts treated as MITs, will be able to choose whether or not to apply the interim trust streaming changes to the 2014–15 income year.

The new regime announced by the government proposes:

• allowing eligible MITs to use an attribution method of taxation (in lieu of the existing present entitlement to income method)
• including a de minimis rule to allow MITs to carry forward some under and over distributions into the next income year without adverse taxation consequences
• deeming as fixed trusts those MITs that clearly define in their constituent documents the rights and entitlements of their beneficiaries, and provide relief from tax consequences that may arise where a trust changes its constituent documents to meet the clearly defined rights requirement
• allowing unit holders to make, in certain circumstances, adjustments (including upward) to the cost base of their unit holdings to eliminate double taxation that may otherwise arise
• replacing the corporate unit trust rules with an arm’s length rule, to be included in the public trading trust provisions, and
• amending the 20% tracing rule for public unit trusts so that it does not apply to super funds and exempt entities that are entitled to a refund of excess imputation credits.

At the time of preparing these instructions, legislation had not been enacted to give effect to the measure.

Claim only one set of franking credits: don’t engage in dividend washing

The dividend washing integrity rule applies from 1 July 2013. The integrity rule prevents you from claiming franking credits where you have received a dividend as a result of dividend washing.

Dividend washing occurs where you, or an entity connected to you, claim two sets of franking credits by:

selling shares that are held on the Australian Securities Exchange (ASX) and have become ‘ex-dividend’, and then

purchasing some substantially identical shares using a special ASX trading market.

The Commissioner may also apply the anti-avoidance legislation to deny franking credit benefits to any dividend washing transactions.

See www.ato.gov.au/dividendwashing for more information.

Net medical expenses tax offset phase-out

Eligibility for the net medical expenses tax offset has changed. The changes restrict who can claim and what types of medical expenses can be claimed.

For the trustee to claim this year:

• they must have received the offset in their 2012–13 assessment in respect of the beneficiary, or
• they must have paid for medical expenses relating to disability aids, attendant care or aged care in respect of a resident beneficiary.

Private health insurance rebate

From 1 July 2013, the Australian Government private health insurance rebate is no longer payable on the lifetime health cover loading component of the private health insurance premiums.

From 1 April 2014, the Australian Government private health insurance rebate will be adjusted annually by the proportional increase in the consumer price index compared to the proportional average premium increase.

As a result of these law changes, we have made some changes to the instructions for claiming the private health insurance tax offset.