Trusts avoiding CGT alert
Liz Gibbs • January 8, 2020

An alert has been issued over arrangements where trustees of unit trusts disposes CGT assets to an arm's length purchaser with no CGT consequences by exploiting restructure rollovers. Whilst there may be many variations of such arrangements, the overall effect is that rather than selling the relevant asset and incurring a large capital gain on which tax needs to be paid, the transferring trust is able avoid tax. The ATO notes it is actively reviewing such arrangements and that the anti-avoidance provisions may apply.

The Tax Office has recently issued an alert on its concerns over trusts avoiding CGT by exploiting restructure rollovers. Specifically, it is actively reviewing arrangements that supposedly allow a unit trust to dispose a CGT asset to an arm's length purchaser with no CGT consequences.

As a result, both taxpayers and advisors who enter into these arrangements will be subject to increased scrutiny.

The arrangement consists of a trustee of a unit trust (transferring trust) selling a CGT asset with a large unrealised capital gain to an arm's length purchaser for an agreed price in the following way:

  1. transferring the asset to a trustee of a new trust (receiving trust) for the purchase price, which gives rise to a debt owing to the transferring trust;
  2. choosing rollover under Subdivision 126-G in relation to the transfer;
  3. the purchaser then subscribes to new units in the receiving trust equal in value to the purchase price; and
  4. the receiving trust subsequently repays the debt to the transferring trust with the funds received from the issue of the new units.

According to the ATO, the steps may be implemented in close succession or structured in stages as a part of a broad scheme. Whilst there may be many variations of such arrangements, the overall effect is that rather than selling the relevant asset and incurring a large capital gain on which tax needs to be paid, the transferring trust is able to transfer the underlying ownership to the purchaser and avoid the capital gain using the rollover provisions.

The specific aspects of the arrangements that concern the ATO include:

  • whether conditions for Subdivision 126-G rollover relief are met in respect of the arrangement;
  • the arrangement appears to be designed primarily to allow the transferring trust to exploit Subdivision 126-G rollover to disregards a capital gain that would otherwise be assessable to the trustee or beneficiaries of the trust;
  • the arrangement results in a change in the underlying ownership of the relevant asset without triggering a CGT taxing point, which is contrary to the intention of the Subdivision 126-G rollover;
  • the parties have entered into this arrangement in circumstances where a direct sale of the relevant asset by the transferring trust to the purchaser would have been simple, viable and commercially expected;
  • the commercial substance of the arrangement is a sale of the asset by a transferring trust to the purchaser, and the complex arrangement can only be explained by the tax advantage obtained by the transferring trust; and
  • the transferring trust receives (and the purchaser pays) the same total sum under the arrangement as if the asset were sold directly.

In light of the concerns, the ATO considers that Pt IVA anti-avoidance provisions may apply to these arrangements where they would otherwise qualify for rollover relief under Subdivision 126-G. While only a small number of cases have been detected so far, the ATO noted at least one case involved the sale of real property of several hundred million dollars.

Do you know your trust?

Trusts, whether they be unit, discretionary or family trusts, can consist of complex arrangements with each specific trust subject to particular rules. If you're a part of a trust, whether it be in the role of trustee or beneficiary, we can help you understand and implement strategies which won't catch the ATO's attention. Contact us today.

Email us at Robert Goodman Accountants at 
.  © Copyright 2020
 
Thomson Reuters. All rights reserved.
 
Brought to you by Robert Goodman Accountants. 
CGT small business concessions
By Liz Gibbs May 2, 2025
In a recent decision, the Administrative Review Tribunal ('ART') held that a taxpayer was not entitled to the CGT small business concessions on the disposal of his interests in some farm land.
By Liz Gibbs May 2, 2025
Businesses that pay contractors for 'Taxable payments reporting system services' may need to lodge a 'Taxable payments annual report' ('TPAR') by 28 August each year.
Retirement
By Liz Gibbs May 2, 2025
The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025.
Key tax policies
By Liz Gibbs May 2, 2025
With the 2025 Federal Election approaching, tax policy is a central topic of debate. Here’s a concise comparison of some the major parties’ key tax proposals to help you stay informed when Australia goes to the polls on 3 May 2025:
By Liz Gibbs May 1, 2025
Make Meetings Work for You: 8 Simple Strategies for Better Results
By Liz Gibbs May 1, 2025
The ATO’s updated small business benchmarking tool
subdivision
By Liz Gibbs May 1, 2025
As the urban sprawl continues in most major Australian cities, we are often asked to advise on the tax treatment of subdivision projects. Before jumping in and committing to anything, it is important to understand the tax liabilities that might arise from these projects.
IAWO
By Liz Gibbs May 1, 2025
It has been a long time coming, but the Government finally passed legislation increasing the instant asset write-off threshold for the year ending 30 June 2025 to $20,000. This was announced back in the 2024-25 Federal Budget but the Government faced a number of hurdles in terms of passing the legislation.
Tax Planning
By Liz Gibbs May 1, 2025
With the end of the financial year fast approaching this is the first blog in our series where we outline some opportunities to maximise your deductions and give you the low down on areas at risk of increased ATO scrutiny.
ATO focus areas
By Liz Gibbs April 30, 2025
The ATO is currently focusing on the following 'specific risk areas', where it is concerned "small businesses are getting it wrong":
More Posts