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September 2005
Changing a Trust without triggering a CGT payment
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Lawyer in Profile Julian SmithSenior Associate Phone: 03 9288 0555 Julian's areas of practice include:
He has experience in drafting various types of commercial agreements, trust deeds and corporate governance documents. He also advises extensively on companies law, financial services (and licensing) and superannuation matters. Julian is studying his Masters of Law at Melbourne University and recently addressed an ICAA conference on "SMSFs: The Virtue of A Good Deed".
When changing a trust deed, it is important to consider whether the change will give rise to any capital gains tax (CGT) implications for income tax purposes.
In particular, you should be careful that when changing the deed you do not inadvertently cause the existing trust to come to an end and to be replaced by a new trust (referred to as a "resettlement"). Problems arise because a resettlement causes a disposal and re-acquisition of the trust property. And CGT may apply. The question of whether a change of a trust deed results in a resettlement for income tax purposes is a question of fact and degree. However, the Australian Taxation Office has issued a Statement of Principles in this regard setting out the circumstances in which it considers that there will be a resettlement of a trust. For example, the following variations are considered sufficiently fundamental to cause a resettlement:
These changes are distinguished from purely procedural changes such as a change of trustee.
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