IR6 Question 20 Income allocation

Income derived by a trustee must be allocated between beneficiary income and trustee income in boxes 20A and 20B respectively.

Question 20A – Beneficiary income excluding minor beneficiaries

Beneficiary income is income of an estate or trust that vests in a beneficiary during the year or is paid to a beneficiary (or credited to them or dealt with in their interest or on their behalf) during the year or within a certain period after the end of the year.

The rest of the income generated by an estate or trust will be trustee income.

The income available to allocate to beneficiaries may be the income in Box 19B but it is important to note that Box 19B is a total of various amounts of estate or trust income. Some of the amounts, such as income from rental activities, are net amounts ie after deductions. Some of the deductions may be for non-cash outgoings, such as depreciation. This may result in there being income that can be distributed to beneficiaries despite Box 19B showing a loss, and providing the trust deed for the trust allows it.

This means there may be amounts that vest in or are paid to beneficiaries that have to be treated as beneficiary income. Identify any such vesting or payment and include the amount in Box 20A. The total must reconcile with the combined totals of Boxes 26H on the IR6B after deducting any taxable distributions included in Box 26G.

Timing of allocation of beneficiary income

Allocation of income to a beneficiary must be made within the income year, or by the later of:

• six months after balance date, or

• the earlier of:

  • the date on which the trustee files the return of income for the income year, or

  • the date by which the trustee must file a return for the income year.

Example

A family trust is allocating income to beneficiaries for the year ended 31 March 2020. The trust return is due on 7 July 2020 and the trust plans to file by 30 June. The income should be allocated by the later of the following:

• 30 September 2020, or

• the earlier of:

  • 30 June 2020, or

  • 7 July 2020.

In this case the income must be allocated by September 2020.

If the trust has a tax agent, the extension of time for filing income tax returns may apply.

Question 20B – Trustee income including minor beneficiaries

Trustee income is any income generated by an estate or trust that isn’t beneficiary income, see Question18A–Beneficiaryincomeexcludingminorbeneficiaries. It includes income accrued to date of death and received afterwards.

Where Box 19B shows a loss, there will be no trustee income and Box 20B should be left blank. The loss in Box 19B will be taken into account by us in calculating the loss to carry forward.

Accrued income and non-apportionment clauses

As a general rule, accrued income to date of death is retained by the trustee and becomes part of the capital of the estate. This income is treated as trustee income.

However, where the will of the deceased taxpayer contains a non-apportionment clause, the beneficiary is entitled to receive the income accrued to date of death. So, if the accrued income is paid to the beneficiary, it’s treated as beneficiary income.