13 Partnerships and trusts 2014

Did you receive or were you entitled to:

• income or a loss from a partnership
• income from a trust (including a managed fund)
• a credit for amounts of tax paid on, or amounts withheld from, partnership or trust income, or
• a share of the 'national rental affordability scheme' tax offset?

or

Did you have an interest in a trust that made a loss from primary production activities?

If the partnership in which you were a partner paid you salary, wages or allowances, you must show that income at this item.

If you received, or were entitled to, a share of the income of a trust (including a managed fund) you must show your share of the trust's net income (for tax purposes) at this item. Do not show these amounts at item 10 or item 24. The amount of your share of the trust's net income (for tax purposes) may be different from the actual distribution which you receive or are entitled to receive from the trust. Your trustee should provide you with details of your share of the trust's net income in your trust statement of distribution or advice. If you have not been advised about your share of the trust's net income, contact your trustee.

You must show at this item your share of the net income of a managed fund, including a cash management trust, money market trust, mortgage trust, unit trust or managed fund such as a property trust, share trust, equity trust, growth trust, imputation trust or balanced trust. If you are unsure whether you have invested in such a trust, check with your advisor or the entity in which you have invested.

No	Go to question 14 Personal services income (PSI), or return to main menu Individual tax return instructions.
Yes	If you were a partner in a partnership that made a loss, you cannot lodge a paper tax return. You must lodge your tax return using e-tax or a registered tax agent. Otherwise, read on.

You need to know

If you have received or are entitled to an amount of income from a partnership or trust which includes a dividend with Australian franking credits from a New Zealand franking company, you may be eligible to claim the Australian franking credits. The instructions at question 20 Foreign source income and foreign assets or property provide guidance on how to claim Australian franking credits from a New Zealand franking company. However, you cannot claim New Zealand imputation credits.

If you have deferred non-commercial business losses from a prior year, you may be able to claim them this year if you operated the same or a similar business. The deferred non-commercial business loss deduction you can claim in 2013–14 may be reduced if:

• you earned net exempt income in 2013–14, or
• you have become bankrupt or were released from any debts by the operation of an Act relating to bankruptcy.

Phone 13 28 66 for more information.

If you were entitled to an amount of trust income at 30 June 2014, you need to include your share of the net income of the trust in your 2013–14 tax return even if you did not receive an amount from the trust until after 30 June 2014. If you have not been advised about all of your trust entitlements, contact your trustee.

Do not show all categories of income from a partnership or trust at this item. If your partnership distribution or your trust statement of distribution or advice includes amounts of the following categories, show them at other items on your tax return as follows:

• show capital gains from trusts at item 18, unless instructed otherwise
• show attributed foreign income at item 19
• show other foreign source income at item 20.

If you are the principal beneficiary of a special disability trust you are considered to be entitled to all the income of the trust.

You should not receive a distribution of a net capital gain or a net capital loss from a partnership. For information about how a partner shows their share of a capital gain or capital loss, see the Guide to capital gains tax 2014.

What you may need

• A statement of distribution or advice from the partnership or trustee showing the following details in relation to your share of partnership distribution or share of trust net income for tax purposes:
  • the amount of any primary production income or loss and the amount of any non-primary production income or loss
  • the amount of any franked distribution from a trust
  • the amount of attributed foreign income and other foreign source income
  • the amount of any income on which family trust distribution tax or trustee beneficiary non-disclosure tax has been paid
  • your entitlement to any of the following credits or tax offsets
    • credit for amounts of tax withheld because the partnership or trust failed to quote its Australian business number
    • credit for amounts of tax withheld by the trustee of a closely held trust because you did not provide your TFN
    • credit for amounts of tax withheld due to the imposition of non-resident withholding tax or managed investment trust withholding tax from partnership or trust income you received when you were a resident
    • credit for amounts withheld from partnership and trust income as a result of the foreign resident withholding rules
    • share of the 'national rental affordability scheme' tax offset
    • allowable franking credits from franked dividends
    • credit for tax file number amounts withheld
    • credit for tax paid by the trustee
     
  • that you are a chosen beneficiary if you are the beneficiary of a discretionary primary production trust that has made a loss
   
• Details of any deductions you can claim against your partnership income or your share of the trust's net income that have not already been claimed by the partnership or trust
  
• If you conducted a business activity as a partner in a partnership that resulted in a loss, or resulted in a loss after deducting your expenses, you must complete items P3 and P9 in the Business and professional items section in Business and professional items 2014 in addition to item 13. If this applies to you, then you must lodge your tax return using e-tax or a registered tax agent.
• If you think that any details are wrong or are missing from the statement of distribution or advice you received from the partnership or trust, contact the managing partner or trustee.

If you are a foreign resident who has received a fund payment from a managed investment trust on which an amount was withheld, see withholding arrangements for managed fund distributions to foreign residents (Nat 72719).

Completing this item

Answer the following three questions.

1 Were you an Australian resident in receipt of, or entitled to receive, Australian source income from a non-resident trust?

If you were an Australian resident, you may be able to claim a credit for Australian withholding tax you have borne on any Australian:

• source dividend
• interest
• royalty, or
• payment from an Australian managed investment trust included in the income of a non-resident trust to which you are entitled. A non-resident trust is a trust which, for all of the income year
  • only has non-resident trustees, and
  • has its central management and control outside Australia.
   

2 Were you under a legal disability?

If you were under a legal disability, you may be able to claim a credit for the tax that the trustee has paid on your share of the trust's net income. You are considered to be under a legal disability if you:

• were under 18 years old on 30 June 2014
• are a person who is bankrupt, or
• have been declared legally incapable because of a mental condition.

3 Were you a foreign resident?

If you were not an Australian resident, you may be able to claim a credit for the tax that the trustee has paid on your share of income from a resident trust.

If you answered No to all three questions, go to part A.

If you answered Yes to one or more of these questions, you will need to provide additional information. Print 'SCHEDULE OF ADDITIONAL INFORMATION - ITEM 13' at the top of a separate sheet of paper. Print your name, address, tax file number, the name of the trust, your share of income from the trust and any credits you are entitled to claim for that income, and explain your situation. Print X in the Yes box at Taxpayer's declaration on your tax return. Attach your schedule to page 3 of your tax return. Read on.

Part A

Were you a partner in a partnership that derived income or made a loss?

No	Go to part B below.
Yes	If the partnership made a loss, you cannot lodge a paper tax return. You must lodge your tax return using e-tax or a registered tax agent.

The information at the following three steps is for tax agents.

Step 1

Write the total of your share of primary production partnership income or loss at N item 13 on page 13 of your tax return. Do not show cents. If you have a loss, print L in the box at the right of N.

Step 2

Write the total of your share of non-primary production partnership income or loss (excluding any attributed foreign income or other foreign source income) at O item 13. Ensure that your share of any franked distributions (that may be shown on your distribution statement from the partnership) are included at O. The amount included at O should include the amount of any attached franking credits. Do not show cents. If you have a loss, print L in the box at the right of O.

Step 3

Complete items P3 and P9 in the Business and professional items section if the amount at N or O includes a loss from a business activity operated by one or more of your partnerships.

Part B

Did you receive, or were you entitled to, income from a trust, or did you have an interest in a trust that made a loss from primary production activities?

If you are the principal beneficiary of a special disability trust you are considered to be entitled to all of the income of the trust.

No	Go to part C below.
Yes	Read on.

Your statement of distribution or advice from the trust should show separately your share of primary production and non-primary production income (excluding net capital gains and foreign income) included in the calculation of the trust's net income (for tax purposes). It will also show whether the trust made a loss in relation to either or both of these income categories. This information is needed for averaging purposes.

You show your share of any primary production trust income or loss included in the calculation of the trust's net income at L item 13 on your tax return and your share of other trust income or loss included in the calculation of the trust's net income at the relevant item, either U item 13, C item 13 or items 18, 19 or 20 on your tax return.

If the trust made an overall loss for tax law purposes in 2013–14, the loss is retained in the trust. You will have no share of the net income of the trust.

If you need help, phone 13 28 61.

Step 1

Write the total of your share of primary production trust net income or loss at L item 13 on your tax return. Do not show cents. If you have a loss, print L in the box at the right of L.

Step 2

Write at U the total of your share of non-primary production trust net income or loss. If your statement of distribution or advice shows these amounts separately, exclude:

• capital gains
• attributed foreign income
• other foreign source income, and
• franked distributions from trusts.

Include any share of credits to be shown for share of credits from income covered in part E.

If you have a loss, print L in the box at the right of U.

Your statement of distribution or advice may show that your share of the trust's net capital gain is more than the overall amount of your share of the trust's net income (for tax purposes) included at item 13, for example because it shows a share of primary production or non-primary production loss. In this situation, there may be a limit to the amount of the net capital gain component that you exclude from U and show at item 18.

For more information see the Guide to capital gains tax 2014.

If your statement of distribution or advice shows your share of franked distributions from trusts separately, write this amount at C, together with any share of franking credits referrable to those franked distributions. The franking credits are also shown at Q under Share of credits from income and tax offsets covered in part E.

Where you are a partner in a partnership, record the franked distributions shown on your statement of distribution from the partnership at O not C.

Exception for primary producers

You may still be eligible for income averaging even where the trust reports a loss. While beneficiaries of fixed trusts that report a loss continue to be eligible for income averaging, beneficiaries of discretionary trusts are now required to meet some additional requirements.

For more information about these, see Income averaging for beneficiaries of primary production trusts.

Completing your claim for income averaging

If you are an eligible beneficiary and you show nothing at L so far, write zero at L.

For more information about how to complete your tax return, see Income averaging for beneficiaries of primary production trusts.

Part C

Can you claim any deductions in relation to a distribution from a partnership or a share of net income from a trust?

No	Go to part D below.
Yes	If you were a partner in a partnership that made a loss, you cannot lodge a paper tax return. You must lodge your tax return using e-tax or a registered tax agent. Otherwise, read on.

Remember, you cannot claim a deduction for amounts already claimed by the partnership or trust, or for expenses incurred in deriving exempt income or non-assessable non-exempt income (for example, expenses incurred in deriving distributions on which family trust distribution tax or trustee beneficiary non-disclosure tax has been paid).

If you are the beneficiary of a discretionary trust you would not normally be able to claim a deduction for expenses you incurred in relation to your share of any net income of the trust under the general deduction provisions. This is because at the time you incurred the expense, you would not have been entitled to any income of the trust.

If you made a prepayment of $1,000 or more for something to be done (in whole or in part) in a future income year, the amount you can deduct at X and Y may be affected by the rules relating to prepayments.

If you have incurred debt deductions, such as interest and borrowing costs, in deriving assessable income from a trust or partnership, of more than $250,000 (alone or combined with those of your associate entities) for 2013–14, the amount that you can deduct at X and Y may be affected by the thin capitalisation rules. For more information see Thin capitalisation.

Primary production deductions

Step 1

If you were a partner in a partnership that incurred eligible expenditure on landcare operations or water facilities, the partnership cannot claim the expenditure. Costs incurred by the partnership are allocated to each partner who can then claim the deduction.

Write your share of the total of any such expenditure that relates to primary production income or loss from partnerships that you can deduct this year at I item 13 on your tax return.

If a trustee incurred eligible expenditure on landcare operations or water facilities, only the trustee, not a beneficiary of the trust, can claim deductions for that expenditure.

Step 2

Write at X item 13 the total of any other deductions (including non-commercial business losses deferred from a prior year) you can claim in relation to your share of:

• primary production income or loss from a partnership, or
• primary production income of a trust.

If you were a partner in a partnership and you can claim a deduction in relation to your share of eligible expenditure incurred by the partnership on horticultural plants, grapevines, electricity connections or phone lines, include any such deduction that relates to primary production income or loss from a partnership at X. For information about deductions for expenditure on horticultural plants, grapevines, electricity connections and phone lines, see the Guide to depreciating assets 2014.

Include a non-commercial business loss deferred from a prior year business activity only if it relates to one of your current year partnership business activities which is the same as, or similar to, the prior year business activity which generated the loss. See the Example below.

Step 3

From the list below, print the code letter in the TYPE box at the right of X that describes business losses from a prior year that you are claiming at X.

• Print D if the entire amount at X is a deferred non-commercial business loss from a prior year.
• Print P if only part of the amount at X is a deferred non-commercial business loss from a prior year.

Leave the TYPE box blank if the amount at X does not include any deferred non-commercial business losses from a prior year.

Non-primary production deductions

Step 1

If a partnership incurs eligible expenditure on landcare operations, the partnership cannot claim the expenditure. Costs incurred by the partnership are allocated to each partner who can then claim the deduction. Write your share of the total of any such expenditure that relates to non-primary production income or loss from partnerships that you can deduct this year at J item 13.

If a trustee incurred eligible expenditure on landcare operations, only the trustee, not a beneficiary of the trust, can claim deductions for that expenditure. For more information on deductions for expenditure on landcare operations, see the Guide to depreciating assets 2014.

Step 2

Write at Y item 13 the total of other deductions (including non-commercial business losses deferred from a prior year) you can claim in relation to your share of:

• non-primary production income or loss from a partnership, and
• non-primary production income of a trust, including any deductions relating to franked distributions from trusts.

If you were a partner in a partnership and you can claim a deduction in relation to your share of eligible expenditure incurred by the partnership on electricity connections, include any such deduction that relates to non-primary production income or loss from partnerships at Y item 13. For information about deductions for expenditure on electricity connections, see the Guide to depreciating assets 2014.

Include non-commercial business losses deferred from a prior year only if they relate to a partnership activity which is the same as, or similar to, your current year partnership activity.

Step 3

From the list below, print the code letter in the TYPE box at the right of Y that describes business losses from a prior year that you are claiming at Y.

• Print D if the entire amount at Y is a deferred non-commercial business loss from a prior year.
• Print P if only part of the amount at Y is a deferred non-commercial business loss from a prior year.

Leave the TYPE box blank if the amount at Y does not include any deferred non-commercial business losses from a prior year.

Part D

Working out net amount from primary production and non-primary production

Step 1

Net primary production amount

Add the income amounts or loss amounts at N and L and take away the amounts at I and X. Write the answer at item 13 Net primary production amount on your tax return. Do not show cents.

If your answer is a loss, print L in the LOSS box at the right of Net primary production amount.

If you have a total net loss from a partnership business activity, complete items P3 and P9 in the Business and professional items section in addition to item 13 on your tax return.

Step 2

Net non-primary production amount

Add the income amounts or loss amounts at O and U. Then add any amount at C and take away the amounts at J and Y. Write the answer at item 13 Net non-primary production amount.

If your answer is a loss, print L in the LOSS box at the right of Net non-primary production amount.

If you have a total net loss from a partnership business activity, complete items P3 and P9 in the Business and professional items section in addition to item 13 on your tax return.

Professional income

If the partnership or trust income which you have received, or to which you are entitled, includes income from activities as an author of a literary, dramatic, musical or artistic work, or as an inventor, performing artist, production associate or active sportsperson, you must also write the amount of this taxable professional income at Z item 24. You will not be taxed twice on this income. More information is available at question 24 Other income.

Part E

Share of credits from income and tax offsets

If the partnership or trust income you have shown at N, L, O, U or C item 13 on your tax return includes or is attributable to:

• income from which an amount of tax was withheld because an Australian business number was not quoted; write your share of the credit at P item 13 (show cents)
  
• interest, dividends and unit trust distributions from which tax file number (TFN) amounts have been withheld; write the total of your share of credits for TFN amounts withheld at R item 13 (show cents)
  
• payments from a closely held trust from which TFN amounts have been withheld; write the total of your credits for those amounts withheld at M item 13 (show cents)
  
• income
  • you received when you were an Australian resident from which an amount of tax was withheld because of the imposition of non-resident withholding tax or managed investment trust withholding tax, or
  • you derived as a foreign resident from which an amount of tax was withheld because of the operation of the foreign resident withholding rules
   

write the total amount of these credits for amounts withheld at A item 13 (show cents)

• national rental affordability scheme (NRAS) rent; write your share of the NRAS tax offset at B item 13 (show cents)
  
• other credits for tax paid by a trustee on trust income; write the total of your share of credits for tax paid by a trustee at S item 13 (show cents). However, if you are the principal beneficiary of a Special Disability Trust, do not include your share of credits for tax paid by the trustee here. Include your share of credits for tax paid by the trustee at T11.

Franking credits

Write the amount of your share of any allowable franking credits which you are entitled to claim as a franking tax offset through a partnership or trust at Q item 13. Show cents.

You can only claim a share of a franking credit which relates to the share of a franked dividend paid to a partnership or trust which is indirectly included in the amount of partnership income or loss you show at O item 13, or in the amount of trust income you show at U item 13 or franked distribution you show at C item 13.

Therefore, you cannot claim a franking credit for a dividend paid to the partnership or trust which was exempt income or non-assessable non-exempt income (for example, a distribution on which family trust distribution tax or trustee beneficiary non-disclosure tax has been paid).

You cannot claim a share of a franking credit through a trust in the following circumstances:

• the trust has an overall loss for tax purposes for 2013–14, or
• you did not show an amount of franked distributions from trusts at C item 13, or
• the amount of income from the trust you have shown at U item 13 is not attributable to the franked dividend which has generated the franking credit.

In addition, in order to claim a franking credit in respect of a particular dividend both you and the partnership or trustee must be qualified persons in relation to that dividend, see Qualified person below.

Qualified person

There are rules, known as franking credit trading rules, designed to prevent the use of franking credits by persons who only briefly own their shares or who do not effectively own their shares. Under these rules, known as the 'holding period rule' and the 'related payments rule', you must satisfy certain criteria before you are considered to be a qualified person.

If you derived dividends indirectly through a partnership or trust (except a widely held trust) you need to determine what component of the trust net income or partnership distribution is attributable to a particular dividend, and then determine whether you have satisfied the holding period rule and the related payments rule in relation to that dividend.

The trustee or the partnership itself must also have satisfied these rules.

The holding period rule applies to shares bought on or after 1 July 1997. It applies to you if you (or the partnership or trust) sold shares within 45 days of buying them. It also applies to you if you (or the partnership or trust) entered into a risk reduction arrangement, such as a derivative transaction, within that time. The holding period is 90 days for certain preference shares.

The related payments rule applies to arrangements entered into after 7.30pm (Australian Eastern Standard Time) on 13 May 1997. It applies to you (or the partnership or trust) if you were under an obligation to make a related payment for a dividend and you did not hold your shares 'at risk' during a specified qualifying period.

Special rules apply if you are the beneficiary of a trust and the trustee has made a family trust election.

If you are a beneficiary in a widely held trust, you are treated as holding an interest in all the shares or interests held by the trust. You are only required to satisfy the 45-day rule in relation to your interest in the trust as a whole, rather than in relation to each share in which you had an interest under the trust. The trustee should be able to advise if a particular trust qualifies as a widely held trust.

If you failed to satisfy the holding period rule, and the related payments rule does not apply to you, you may still be entitled to a franking tax offset if you qualify for the small shareholder exemption. The small shareholder exemption applies provided that you do not exceed the franking tax offset ceiling of $5,000 on all your franking tax offset entitlements in a given year, whether received directly or indirectly through a partnership or trust.

Check that you have...

• completed as necessary parts A, B, C, D and E
• attached to page 3 of your tax return your SCHEDULE OF ADDITIONAL INFORMATION - ITEM 13, if you need to send us one
• kept a record of each partnership distribution or share of net income from a trust with your other records. You need the following information: name and tax file number of the partnership or trust, amount and source of each partnership distribution or share of net income from a trust, amount of any taxable professional income, amount and type of deductions claimed, and amount and type of any share of credits.

Where to go next

• Go to question 14 Personal services income (PSI).
  
• Return to main menu Individual tax return instructions.
  
• Go back to Income that you show on the supplementary section of the tax return