| Capital Gains Tax and Trust Cloning |
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In TR 2006/4 the Tax Office has previously outlined in detail its view of all of the key aspects that must be identical under two trusts for a taxpayer to be able to transfer assets between the trusts without triggering a capital gain in certain circumstances. The Tax Office recently released ATO ID 2006/318, which indicates that this will not apply where the meaning and effect of the trust deeds are not the same, even if the wording of the two deeds is identical. The example provided concerns two trust deeds that were identically worded, with both having a clause that excluded the settlor from taking any benefit under the trust. Each trust had a different settlor who established the trust by contributing the initial trust property or capital. In this case, when a piece of property was transferred from one trust to the other, capital gains tax applied as the two trust deeds, while worded identically, did not have the same meaning and effect. This was because a different settlor was excluded from benefiting under each trust. Tip: When drafting trust deeds, great care should be taken to ensure that the two trusts are considered identical if it is likely that assets may be transferred between the trusts in the future. |