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