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Changing a Trust without triggering a CGT payment

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:

  • redefining a group of beneficiaries, asdistinct from changing the membership of an existing group; and
  • fundamental changes to the terms of atrust. For example, converting a discretionary trust to a unit trust.

These changes are distinguished from purely procedural changes such as a change of trustee.

 

Lawyer in Profile

Julian Smith
Julian Smith
Partner
PH: 61 3 9258 3734

Julian Smith is a partner in the Maddocks Commercial team.

Julian advises extensively in the following areas:

  • trusts law;
  • self managed super funds;
  • business and company sales and acquisitions; and
  • financial services law.

Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.

Julian has been with Maddocks since undertaking articles in 2001.