As an Executor of my parents’ Wills, I have a question about whether my parents incurred a Capital Loss.
This not so much advice, but a yes/no tax law question.
My parents issued a personal loan to a Discretionary Trust where my parents and my brother were equal 1/3 beneficiaries.
This well documented personal loan was apparently forgiven. I googled and found:
“Whenever there is a loan balance that gets reduced in any way, either with debt forgiveness, …there is a taxable event”
“Where tax losses don't eat up the forgiven loan, the Australian Taxation Office applies the amount to capital losses.”
My brother as 1/3 beneficiary of Trust receives a windfall of 1/3 the loan. He did not issue loan so I understand his windfall is ordinary income.
Question: As my parents issued personal loan to Trust, is their Net Capital Loss = Capital Loss from forgiven loan, minus 2/3 windfall as 2/3 beneficiaries of Trust?
Eg if forgiven loan was say $3m, then my brother receives $1m in taxable ordinary income, so did my parents record a matching $3m – 2/3 x $3m = $1m capital loss which carries forward?
This not so much advice, but a yes/no tax law question.
My parents issued a personal loan to a Discretionary Trust where my parents and my brother were equal 1/3 beneficiaries.
This well documented personal loan was apparently forgiven. I googled and found:
“Whenever there is a loan balance that gets reduced in any way, either with debt forgiveness, …there is a taxable event”
“Where tax losses don't eat up the forgiven loan, the Australian Taxation Office applies the amount to capital losses.”
My brother as 1/3 beneficiary of Trust receives a windfall of 1/3 the loan. He did not issue loan so I understand his windfall is ordinary income.
Question: As my parents issued personal loan to Trust, is their Net Capital Loss = Capital Loss from forgiven loan, minus 2/3 windfall as 2/3 beneficiaries of Trust?
Eg if forgiven loan was say $3m, then my brother receives $1m in taxable ordinary income, so did my parents record a matching $3m – 2/3 x $3m = $1m capital loss which carries forward?
