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Capital and Income Accounts (Trusts)

Below is an overview of the rules regarding Capital and Revenue transactions, the trust deed may give specific instructions regarding how to classify transactions. 

Capital Account

All assets and/or liabilities received by the trust at the outset are considered capital. Additionally, the following are also recorded to the capital account:

  • Any subsequent asset sale or new purchase
  • Any capital gain or loss resulting from an asset sale or deemed disposition

Income Account

 The income account, on the other hand, records returns arising on capital assets:

  • Interest on assets held by the trust
  • Cash dividends and dividends in kind (stock dividends, i.e., more shares in the same company, are paid to the capital account) on assets held by the trust
  • Rents on assets held by the trust
  • Other income on assets held by the trust
  • Tax on income not distributed
  • Income distributions to beneficiaries
  • Interest expense on debt incurred to earn income
  • Cost of collecting rents or other income
  • Annual expenses for a home that a life tenant lives in (such as condo fees, property taxes, water and utility fees, etc.)
  • Insurance for income-generating properties.
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