Tax Tip 291: Changing Trustees and CGT

The trustee of a trust will be the legal owner of any trust property, generally, so any change in trustee would generally result in a transfer of property from the old trustee to the new trustee. This will be a change in legal ownership, and this usually is a CGT event.

But where the beneficial ownership remains the same there won’t be a CGT event triggered.


CGT won’t be triggered because of s104-10 ITAA97

“A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee”

This sentence is a direct quote from section 104-10 ITAA97
INCOME TAX ASSESSMENT ACT 1997 - SECT 104.10 Disposal of a CGT asset: CGT event A1


Example

Homer is trustee for Bart. It is a bare trust arrangement and Homer owns a property for Bart who is the sole beneficiary. Homer is arrested in Mexico and it looks like he will be stuck for a while over there so the trustee is changed to Barney, and the property is transferred from Homer to Barney.

This won’t trigger CGT because Bart remains the beneficial owner.


Another example

Ned is the trustee for the Flanders Family Trust. Ned owns 12 Smith Street as trustee of the trust and he is no longer working and the equity in the property cannot be accessed. Ned arranges for a company to be set up with his son, an adult, as director and shareholder. Flan Pty Ltd is then appointed as trustee and Ned transfers the title of the property to Flan Pty Ltd who borrows to pay out Ned’s loan with Todd, his son, giving a guarantee.

No CGT is triggered on this either.


But there are many other implications for the changing of trustees so please seek legal advice before acting.

 

My basic advice is ; All changes to a trust or trustee should always be given legal advice.

Stamp duty and income tax and CGT and estate planning and family law isssues are all relevant and easily overlooked.
Changes of beneficial interest can be a CGT event and a concern - eg TD 2012/21 as an example... This considers that a trust resettlement can occur. And that could also be dutiable.

 

I should emphasis that this thread is about changing the trustee and not the trusts - that is a different topic.

 

Night follows day..... In practice most people will make both changes if they dont consider advice first. The key knowledge is seek advice first.. Dont just think "oh no CGT yipee"
and then act on your own based on Tip 291.

Tip 291 on its own could be a hazard. But in the pure simple issue of exchanging a trustee eg Homer v's Homer Enterprises Pty Ltd the legal issues with changing title to trust assets should also be explored. Years later some adviser settling Homers will may ask why Homer is still the legal owner to a trust property

 

These tips are not meant to be exhaustive treatments covering all aspects as this could be a never ending story.

They are just tips which might give some people about ideas they were not otherwise aware of and that is why I also suggest legal advice be sought being acting on them.

 

Just wondering if it's a corporate trustee with family trust owning the house and the house is fully paid, if we change the directors and beneficiaries, does that trigger a cgt event and stamp duty?

 

Change beneficiaries in what way?

family trusts for example are generally written to cover most family members including unborn ones. But note issues with tax non resident beneficiaries for trusts that hold real estate.

 

That sounds like it could be a resettlement.

Legal Tip 31: Trust Resettlements https://propertychat.com.au/community/threads/legal-tip-31-trust-resettlements.1580/

but it depends on what you mean.

Better get some legal advice.