Introduction

These instructions will help you complete the Trust tax return 2020. 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 trustee 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?

New measures - economic response to novel coronavirus (COVID-19)

A number of new rules are now in place following the Government's economic response to novel coronavirus (COVID-19).

If an entity as an employer receives a cash flow boost under the 'Boosting cash flow for employers' measure, the amounts will be tax free (non-assessable non-exempt income) and the entity will still be entitled to a deduction for the PAYG withholding paid.

From 12 March 2020 until 30 June 2020, the instant asset write-off:

• threshold is $150,000 (up from $30,000)
• eligibility range covers businesses with an aggregated turnover of less than $500 million (up from $50 million).

Businesses with an aggregated turnover of less than $500 million are able to accelerate their depreciation deductions on the purchase of certain new depreciable assets. This applies to eligible assets held and first used or installed ready for use from 12 March 2020 until 30 June 2021.

Entities that are employers may be eligible to receive the Jobkeeper payment in respect of eligible employees and an individual who is an eligible business participant. Any amount received by the entity will be assessable income of the business.

See also:

• COVID-19 - Information about ATO measures and tailored support
• COVID-19 - Frequently asked question

Extending anti-avoidance rules for circular trust distributions to family trusts

From 1 July 2019, trustees of family trusts are liable to pay trustee beneficiary non-disclosure tax (TBNT) on circular trust distributions. Family trusts are trusts that have a valid family trust election in place, have made a valid interposed election, or are part of a family group.

When trustees of those trusts become presently entitled to a circular trust distribution, TBNT is imposed on the untaxed part of that distribution at the top marginal tax rate, plus the rate of Medicare levy.

For more information, see Closely held trusts

Limiting access to tax concessions for testamentary trusts

On 22 June 2020, legislation was enacted to improve the integrity of the taxation of a testamentary trust by preventing minors from accessing concessional tax rates (that is, the ordinary tax rates) on income derived by a testamentary trust from assets unrelated to the deceased estate.

These changes apply to assets acquired by, or transferred to, the trustee of a testamentary trust on or after 1 July 2019.

For more information see Appendix 9: Trustee instructions for beneficiaries under 18 years old - other than deceased estates.

Improved reporting for trusts

To allow trustees of trusts to more accurately report information to us, we have added:

• a new Testamentary trusts code at Type of trust
• a new label C1 Div 6AA Eligible income at item 56 Statement of distribution.

For more information see Testamentary Trusts

Stapled Structures

Measures were introduced to address risks posed by arrangements involving stapled structures and to limit access to concessions currently available to foreign investors for passive income. A stapled structure is an arrangement where two or more entities that are commonly owned (at least one of which is a trust) are bound together, such that interests in them (e.g. shares or units) cannot be bought or sold separately. For more information, see Stapled structures.

The following changes took effect from 1 July 2019:

• A 30% managed investment trust (MIT) withholding tax is applied to trading income that is converted to passive income via a stapled structure or distributed by a trading trust, and to income from agricultural land and residential housing (other than affordable housing).

Tax exemptions for foreign pension funds and sovereign wealth funds are limited to passive income and portfolio-like investments only (typically interests of less than 10%). Non-concessional MIT income (NCMI)

MIT withholding tax applies to fund payments made by a withholding MIT to foreign residents. For recipients in an exchange-of-information country, the rate of MIT withholding tax was 15%. From 1 July 2019, the MIT withholding tax rate became 30% to the extent that the fund payment is attributable to non-concessional MIT income (NCMI).

Subject to certain exceptions, an amount of a fund payment will be NCMI if it is attributable to income that is:

• MIT cross staple arrangement income
• MIT trading trust income
• MIT residential housing income, or
• MIT agricultural income.

Transitional rules apply to appropriately protect existing arrangements from the impact of the amendments. If the transitional rules apply, the concessional MIT withholding tax rate of 15%(for recipients in exchange of information (EOI) countries) will continue to apply for the relevant transitional periods. New, approved, economic infrastructure projects may also be concessionally taxed.

What is 'Excluded from NCMI'?

From 1 July 2019 certain income derived by sovereign entities from portfolio-like interests in MITs (or Australian companies) is non-assessable non-exempt income that is also exempt from withholding tax. However the exemption does not apply to NCMI or amounts that are excluded from NCMI. 'Excluded from NCMI' amounts are amounts that are attributable to income that would be NCMI but for:

• Approved economic infrastructure facility exception (see subsection 12-437(5) of Schedule 1 to the TAA 1953)
• Transitional – MIT cross staple arrangement income (see section 12-440 of Schedule 1 to the TAA 1953)
• Transitional – MIT trading trust income (see section 12-447 of Schedule 1 to the TAA 1953)
• Transitional – MIT residential housing income (see section 12-451 of Schedule 1 to the TAA 1953)
• Transitional – MIT agricultural income (see section 12-449 of Schedule 1 to the TAA 1953)

Additional fields for Stapled structures

The Trust tax return has been amended to accommodate the amendments by adding the following:

• item 32 Non-concessional MIT income (NCMI). This section is to correctly report NCMI and Excluded from NCMI in relation to primary and non-primary production income generating activities.
• Managed investment trusts to determine whether a trust is a managed investment trust.
• new fields to the Statement of distribution.

Hybrid mismatch rules

The hybrid mismatch rules (‘the rules’) have been implemented and targeted towards certain transactions/arrangements which result in either of the following outcomes:

• a deduction is available in two countries for the same payment, or
• where a deduction is available for a payment in one country, but the corresponding income is not included as assessable income in the recipient country.

There is no minimum income or turnover threshold for the application of these rules and the rules can apply to any entity.

The rules have an effective start date for income years beginning on or after 1 January 2019.

The rules may apply where there are dealings with foreign countries that result in either of the above outcomes.

Where the rules apply, a deduction may be disallowed for an otherwise deductible expense, or an amount may be included in assessable income.

For more information, see Hybrid mismatch rules

Significant Global Entity (SGE) definition amendment

In the 2018-19 budget, the government announced amendments to the definition of significant global entity. The amendments broaden the definition to ensure consistent application across all types of entities, irrespective of whether they are a member of a group that is consolidated for accounting purposes.

From 1 July 2019, an entity is an SGE for a period if it is:

• a global parent entity with an annual global income of A$1 billion or more
• a member of a group of entities consolidated for accounting purposes, and one of the other group members is a global parent entity with an annual global income of A$1 billion or more
• a member of a notional listed company group, and one of the other group members is a global parent entity with an annual global income of A$1 billion or more.

A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes if a member of that group was a listed company. Any exceptions in accounting principles that may permit an entity not to consolidate with other entities are disregarded.

An entity is also an SGE if it, or any other member of the actual or notional accounting consolidated group of which the entity is a member, has been given a notice by the Commissioner determining that its global parent entity would have an annual global income of A$1 billion or more for any period during the income year.

The SGE status of an entity must be recorded in the relevant income tax return. If an entity is an SGE and lodges a Trust tax return, it should print X at G1 at item 2 Status of business.

See also:

• Significant global entities

Country by country reporting entity definition

As a result of the legislative changes to the definition of an SGE, the scope of an SGE is wider than the scope of entities required to undertake country by country reporting. A new definition of ‘country by country reporting entity’ (CBC reporting entity) has therefore been introduced. In effect, a CBC reporting entity is an entity that would be an SGE had the definition of an SGE permitted the exception to consolidation related to investment entities in the accounting principles.

From 1 July 2019, an entity is a CBC reporting entity if it is not an individual, and is:

• a country by country reporting parent
• a member of a country by country reporting group, and one of the other group members is a CBC reporting parent with an annual global income of A$1 billion or more.

A country by country reporting group may be a group that is consolidated for accounting purposes as a single group or a notional listed company group. A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes if a member of that group was a listed company. Unlike the SGE definition, the exception to consolidation in the accounting principles related to investment entities is not disregarded; that is,if applicable, when determining whether an entity is a CBC reporting entity, the investment entity exception in the accounting principles should be applied.

If an entity is a CBC reporting entity, it will have CBC reporting obligations. From 1 July 2019, CBC reporting obligations depend on whether an entity was a CBC reporting entity at any time in the preceding income year. This is a change from previous years where CBC reporting obligations depended on whether an entity was an SGE at any time in the preceding income year.

The CBC reporting entity status must be recorded in the relevant income tax return. If an entity is a CBC reporting entity and lodges a Trust tax return, it should print X at G2 at item 2 Status of business.

See also:

• Country by country reporting

General information

Australian Business Register

We are authorised by the A New Tax System (Australian Business Number) Act 1999 and other taxation laws to collect certain information relating to your entity. We may use business details supplied on the tax return to update the information held in the Australian Business Register (ABR) in relation to your entity. This may include cancelling the ABN if your entity is no longer entitled to be registered in the ABR.

Where authorised by law, selected information on the ABR may be made publicly available and some may be passed on to other Commonwealth, state, territory and local government agencies. These agencies may use ABR information for purposes authorised by their legislation, or for carrying out other functions of their agency. Examples of possible uses include registration, reporting, compliance, validation and updating of databases.

You can find details of agencies that regularly receive information from the ABR at abr.gov.auExternal Link or you can phone us on 13 92 26 between 8.00am and 6.00pm Monday to Friday to have a list of the agencies sent to you.

See our privacy statementExternal Link for more information about:

• privacy
• the information we collect
• how it may be used.

Foreign exchange (forex) gains and losses

Under the forex measures (Division 775 of the ITAA 1997) and the general translation and functional currency rules (Subdivisions 960-C and 960-D of the ITAA 1997), forex gains and losses are generally brought to account as assessable income or allowable deductions when realised. The forex measures cover both foreign currency denominated arrangements and, broadly, arrangements to be cash-settled in Australian currency with reference to a currency exchange rate. Forex gains and losses of a private or domestic nature, or in relation to exempt income or non-assessable non-exempt income, are not brought to account under the forex measures.

If a forex gain or loss is brought to account under the forex measures and under another provision of the tax law, it is assessable or deductible only under the forex measures.

Generally, where the TOFA rules apply to the forex gains and losses of a trust then those gains and losses will be brought to account under those TOFA rules instead of the forex measures.

Additionally, forex gains and losses will generally not be assessable or deductible under the forex measures if they arise from certain acquisitions or disposals of capital assets, including CGT assets and depreciating assets, and the time between the acquisition or disposal and the due date for payment is no more than 12 months. Instead, any forex gain or loss is usually matched with or integrated into the tax treatment of the underlying asset.

The general translation rule requires all tax-relevant amounts to be expressed in Australian currency regardless of whether there is an actual conversion of that foreign currency into Australian dollars.

The tax consequences of forex gains or losses on foreign currency assets, rights and obligations that were acquired or assumed before 1 July 2003 are determined under the law as it was before these measures came into effect, unless:

• you have made a transitional election that brings these arrangements under the forex measures, or
• there is an extension of an existing loan (for example, an extension by a new contract or a variation to an existing contract) that brings the arrangement within these measures.

For more information, see Foreign exchange gains and losses.

Interposed entity elections and family trust elections

The Tax Laws Amendment (2007 Measures No. 4) Act 2007 amended Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) to:

• allow interposed entity elections to be revoked where the election was made for an entity that was already included in the family group of the individual specified in the family trust election at the election commencement time. An interposed entity election may also be revoked at a later time where the entity becomes wholly owned by members of the family group. If an interposed entity election is revoked, you must complete an Interposed entity election or revocation 2020 (NAT 2788) and attach it to the trust’s tax return
• broaden the definition of family to include lineal descendants of a nephew, niece, or child of the test individual or the test individual’s spouse
• ensure that the death of a family member does not by itself result in another family member ceasing to be a member of the family
• exempt distributions made to former spouses, former widows/widowers and former stepchildren from family trust distribution tax by including them within the definition of family group
• allow family trust elections to be revoked if the family trust is a fixed trust or if the family trust election was not required for deduction of tax losses, bad debt deductions or accessing franking credits
• permit family trusts that have made a family trust election in respect of the same test individual to be included in each other’s family group and not treated as an outsider to the trust for the purposes of the income injection test
• allow the test individual specified in a family trust election to be changed only once, where the new test individual was a member of the original test individual’s family, provided that no conferrals of present entitlement to (or distributions of) income or capital of the family trust (or an interposed entity) have been made outside the new test individual’s family group.

Electronic lodgments

Tax agents who lodge trust tax returns electronically must complete the Partnerships and trusts rental property schedule 2020 if item 9 Rent is completed.

You do not have to complete that schedule if you are lodging a paper version of the trust tax return.

Information matching

We are making increasing use of information-matching technology to verify the correctness of tax returns.

Ensure all information is fully and correctly declared on your tax returns. Certain claims made may be subject to additional scrutiny by us.

In particular, we will be checking the following on the 2020 tax returns:

• distributions from partnerships and trusts
• total salary and wages paid against the pay as you go (PAYG) withholding system
• interest and dividend income
• franking credits claimed.

Hobby or business

It is important to determine whether the trust is carrying on a business, as distinct from pursuing a hobby, sport or recreational activity that does not produce assessable income.

The factors or business indicators various courts and tribunals have taken into account in determining if a business exists for tax purposes include whether the activity:

• has actually started
• has a significant commercial purpose or character
• is undertaken with a purpose of profit as well as a prospect of profit
• is carried out in a manner that is characteristic of the industry
• has repetition, regularity or continuity
• is planned, organised and carried on in a business-like manner
• is of a sufficient size, scale and permanency to generate a profit
• is not more properly described as a hobby, recreation or sporting activity.

For more information, see Are you in business? and TR 97/11 Income tax: am I carrying on a business of primary production?

Private ruling by the Commissioner of Taxation

A private ruling is a written expression of opinion by the Commissioner of Taxation (the Commissioner) about the way in which tax laws and other specified laws administered by the Commissioner would apply to, or be administered in relation to, an entity in relation to a specified scheme.

An application for a private ruling must be made in the approved form and in accordance with Divisions 357 and 359 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

The required information and documentation that accompany a private ruling request must be sufficient for the Commissioner to make a private ruling and include:

• the entity to whom the ruling is to apply
• the facts describing the relevant scheme or circumstance
• relevant supporting documents such as transaction documents
• issues and questions raised relate to the relevant provision to which the ruling relates
• your arguments and references on such questions.

The Commissioner may request additional information to make a ruling. The Commissioner will then consider the request and either issue or, in certain limited circumstances, refuse to issue a private ruling.

Publication

To improve the integrity of the private rulings system, we publish a version of every private ruling on the ATO Legal database.

Before we publish, we edit the ruling to remove all identifying details, to ensure that taxpayer privacy is maintained.

A copy of the edited version of the ruling that we plan to publish is included with the ruling. Applicants who are concerned that the edited version may still allow them to be identified have 28 days to contact us to discuss these concerns.

For more information, see PS LA 2008/4 Publication of edited versions of written binding advice.

Review rights

Generally, taxpayers can object to adverse private rulings or a failure to make a private ruling in much the same way that they can object to assessments. They can refer to a review of adverse objection decisions on a private ruling by the Administrative Appeals Tribunal (AAT) or a court. An explanation of review rights and how to exercise them is issued with the private ruling.

A taxpayer cannot object to a private ruling if there is an assessment for the taxpayer for the same income year to which the ruling relates. If this is the case, the taxpayer can only object to the assessment.

Where a taxpayer has objected to a private ruling, the taxpayer cannot object to a later assessment about the same matter ruled on, unless the assessment relates to facts that are materially different from those dealt with in the private ruling, or deals with the application of tax law provisions not dealt with in the private ruling (for example, the application of Part IVA of the ITAA 1936).

For more information on how to object to private rulings and assessments, including the time limits within which those objections have to be made, see Dispute or object to an ATO decision.

When rulings are binding

A private ruling is binding on the Commissioner where it applies to an entity and the entity has relied on the ruling by acting (or omitting to act) in accordance with the private ruling. A private ruling only applies to the particular scheme or circumstance that it describes. If there is a material difference between the scheme described and what actually occurs, the private ruling does not apply.

An entity can stop relying on a private ruling at any time (unless prevented by a time limit imposed by a taxation law) by acting (or omitting to act) in a way that is not in accordance with the private ruling, and can subsequently resume relying on the private ruling by acting accordingly. The Commissioner cannot withdraw a private ruling. However, where the scheme to which a private ruling relates has not begun to be carried out and where the private ruling relates to an income year or other accounting period, and that period has not begun, the Commissioner can make a revised private ruling.