Tax Tip 199: Passing Assets from a Testamentary Trust to a Discretionary Trust CGT Free

Discussion in 'Accounting & Tax' started by Terry_w, 13th May, 2019.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    As seen in my last tax tip

    Tax Tip 194: Transferring a Property from a Testamentary Trust to a Beneficiary Without CGT

    Tax Tip 194: Transferring a Property from a Testamentary Trust to a Beneficiary Without CGT

    It is possible to transfer an asset from a Testamentary Discretionary Trust (TDT) to an individual beneficiary of the TDT.

    Note that it is also possible to transfer assets from the TDT to beneficiaries of the TDT who a not primary beneficiaries but secondary beneficiaries. Secondary beneficiaries are usually not named directly, but they are beneficiaries by their relationship to named beneficiaries.

    Examples include:

    Primary beneficiary is Homer Simpson

    Secondary beneficiaries are any spouse, child, parent etc of a primary beneficiary.

    Secondary beneficiaries also sometimes include companies and trusts and this may be worked like: Any corporation in which a primary beneficiary is director or shareholder and any trust in which a primary beneficiary is a beneficiary, appointor or trustee.

    This means that were a discretionary trust that was already in existence, or even setup after, the death is also a beneficiary of the trust – if worded right.

    This in turn means that it may be possible to transfer an asset from a TDT to an inter vivos Discretionary Trust, Unit Trust or Company.


    You would only want to do this in very limited circumstances, but this could be handy where laws change down the track – for example where trusts become heavily taxed and it then becomes advantageous to hold an asset in a company instead of the TDT.


    The beauty of TDTs is that this transfer can be done without triggering CGT.

    See Tax Tip 194 for details

    And note question 2 in PBR 99991231235958 which even allowed the TDT set up under a will to be varied to allow for trusts to be incorporated into the class of beneficiaries which was not contemplated at the time the deceased had their will drawn up.

    https://www.ato.gov.au/law/view/view.htm?docid=EV/1012846046513&PiT=99991231235958
     
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  2. FXD

    FXD Well-Known Member

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    Pls tell me the other way round will also work CGT free :D
     
  3. Trainee

    Trainee Well-Known Member

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    Whats the benefit?
     
  4. FXD

    FXD Well-Known Member

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    For the surviving spouse to transfer her interests in existing DT into the TDT without CGT burden for her, who will be the sole beneficiary of the existing DT.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A beneficiary has no interest in a discretionary trust, other than an interest to be considered to receive income. So there would be nothing to transfer.

    If you are wanting to have the trustee of one trust transfer to the trustee of another trust then it would be a CGT event based on the value of the property and the cost base.
     
  6. FXD

    FXD Well-Known Member

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    ok thanks Terry I keep confusing over actual entity with the ownership as such.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    but a trust isn't an entity!