How Trust Capital Gains Streaming Works
How it works
When a trust realises a capital gain, Subdivision 115-C of the ITAA 1997 allows the trustee to stream (direct) specific capital gains to specific beneficiaries rather than distributing them proportionally. This flexibility lets trustees allocate gains to the beneficiaries who will pay the least tax on them — for example, directing discounted gains to individuals who can apply the 50% CGT discount, while directing other income types to a company beneficiary.
The critical mechanical step in trust streaming is the gross-up. When a trust applies the 50% CGT discount at the trust level, each beneficiary's share is a "discounted" amount. The beneficiary must gross this up — multiply by 2 — to reconstruct the original gain, then apply their own discount entitlement. If the trust also applied the 50% small business active asset reduction, the gross-up multiplier is 4 (because two successive 50% reductions were applied at the trust level). Company beneficiaries gross up the same way but receive no discount — the full grossed-up amount is assessable. This calculator handles the gross-up arithmetic and applies the correct discount for each beneficiary's entity type.
For streaming to be effective, the trustee must make a resolution by 30 June of the relevant financial year specifying which beneficiaries are entitled to which capital gains. Without a valid resolution, the gains are assessed proportionally under Division 6 based on each beneficiary's share of the trust's income — or potentially assessed to the trustee at the top marginal rate under section 99A.
When to use this calculator
- You are a trustee distributing capital gains to multiple beneficiaries and want to optimise the tax outcome by streaming gains to specific beneficiaries
- You need to calculate the gross-up multiplier (1x, 2x, or 4x) based on which reductions the trust applied before distribution
- You have company beneficiaries and need to see the impact of receiving grossed-up capital gains without any CGT discount
- You are distributing to minor beneficiaries (under 18) and need to check whether Division 6AA penalty rates apply
- You want to compare different allocation scenarios to find the most tax-effective distribution split before making the trustee resolution
Key concepts
- Gross-up multiplier
- Beneficiaries must reverse any reductions applied at the trust level before applying their own discount. If the trust applied the 50% CGT discount only, the multiplier is 2 (the beneficiary doubles their share). If the trust also applied the 50% small business active asset reduction, the multiplier is 4 (the beneficiary quadruples their share). The beneficiary then applies their own discount entitlement to the grossed-up amount.
- Specific entitlement
- A beneficiary has a specific entitlement to a capital gain when the trust deed and a trustee resolution made by 30 June clearly allocate that particular gain to them. Without a specific entitlement, the gain may be assessed under the Division 6 proportionate-share rules instead of the streaming rules, potentially resulting in a less favourable tax outcome.
- Company beneficiary treatment
- Companies are never entitled to the CGT discount. When a company beneficiary receives a share of a trust's discounted capital gain, the gain is grossed up (×2 or ×4) and the full amount is assessable at the company tax rate (25% for base-rate entities or 30% for non-base-rate entities) with no discount applied.
- Division 6AA (minor beneficiary penalty rates)
- Trust income (including capital gains) distributed to beneficiaries under 18 is subject to penalty tax rates under Division 6AA: a nil rate on the first $416, 66% from $417 to $1,307, and 45% above $1,307. An exception applies for distributions from testamentary trusts (trusts created by a will), which are taxed at normal adult marginal rates.
Worked example — streaming a discounted gain to two beneficiaries
The Chen Family Trust sold an investment property held for 6 years, realising a capital gain of $200,000. After applying trust-level capital losses of $20,000, the net gain is $180,000. The trust applies the 50% CGT discount, reducing the distributable amount to $90,000. The trustee resolves to stream $60,000 (two-thirds) to Alice (an individual beneficiary) and $30,000 (one-third) to Chen Holdings Pty Ltd (a company beneficiary).
Alice (individual beneficiary):
| Step | Detail | Amount |
|---|---|---|
| Trust distribution (discounted) | Two-thirds of $90,000 | $60,000 |
| Gross-up (×2) | Reverse trust-level discount | $120,000 |
| Apply own 50% CGT discount | Individual, held > 12 months | −$60,000 |
| Alice's assessable capital gain | $60,000 |
Chen Holdings Pty Ltd (company beneficiary):
| Step | Detail | Amount |
|---|---|---|
| Trust distribution (discounted) | One-third of $90,000 | $30,000 |
| Gross-up (×2) | Reverse trust-level discount | $60,000 |
| Company CGT discount | Companies not eligible — 0% | $0 |
| Company's assessable capital gain | $60,000 | |
| Tax at 25% company rate | Base-rate entity | $15,000 |
Alice and the company each have an assessable gain of $60,000, but the tax outcomes differ significantly. Alice pays tax at her marginal rate on $60,000 (potentially as low as $9,967 if it is her only income). The company pays a flat $15,000 at the 25% base-rate. If the trustee had streamed the entire $90,000 to Alice instead, her grossed-up amount would be $180,000 with a $90,000 assessable gain — but this might push her into a higher tax bracket, making the split allocation more efficient overall.