Tax Tip 360: Transferring Title to a Trustee without Triggering CGT

It is possible to transfer an asset to a trustee without triggering CGT if the trustee holds it on bare trust for the transferor.


Relevant Legislation

s 104-55(5) ITAA97

INCOME TAX ASSESSMENT ACT 1997 - SECT 104.55 Creating a trust over a CGT asset: CGT event E1


Example

Bart owns 123 Smith Street. He appoints a Company to act as trustee for him under a bare trust. Bart transfers the title of the property to Company Pty Ltd yet no CGT is triggered.

Why?

Because Bart is still the sole beneficial owner and he is absolutely entitled to the income and the assets of the property.

 

Ahhh but is it dutiable ? as a change of the legal owner ? Legal advice on state duties is important.

The opposite position is where a property is held on trust and a trustee is legal owner. Where the trust "merges" the beneficial interest and legal interest may become one and the same. This may mean a property ownership changes without duty...But still with CGT. Trust merger may occur when (example) a trustee is legal owner ie XYZ Pty Ltd. Trust has a sole beneficicary Mr X. Trustee is changed so in place if XYZ Pty Ltd it is changed under terms of trust so it is Mr X. Legal tite is transferred by land titles under concessions to Mr X as trustee (trustee was changed). Now trustee and beneficiary are one and the same oe Mr X owns the asset. There is no trust property. This matter of merger can inadvertently occur when DIY changes to trust unitholdings are made. A CGT liability can be triggered without knowedge. Often detected by OSR on review to land title changes. And can also trigger a GST taxable suply if its not resi property.

That also has some duty concerns. It may sometimes be exempt. Not in QLD. And may be subject to a property value threshold in many states. Can then flow through to a land tax issue as the trust no longer owns property but Mr X does and aggregation could see more land tax.

Source CPT Custodian v OSR...I dont provide links or actual case details to the specific decision as it is subject to further application by state revenue authorities and requires complex legal advice. A non fixed trust may also consider this matter and trust changes may not resettle a trust in which case the principles of CPT custodian could be applied to a non fixed (ie not a unit) trust.

 

Advice should be sought on duty. It could be exempt in VIC, perhaps in NSW. the apparent purchaser sections might apply in some instances

 

Hi Terry - i am looking at this with key consideration being to reduce Land tax. The property is in VIC and i will like to retain long term but due to multiple holdings in single name land tax kills.

Will this allow me to put the property on a separate trust threshold for land tax purposes or will the property still be lumped in my name alingwith other properties?

 

it won't help with land tax.

 

Will the trustee benefit from the original cost base or will the cost base be the date of transfer & how will a pre-CGT asset be treated (if it is worth doing at all)?

 

The original owner remains the beneficial owner so there is no change to CGT. When sold they trustee won't be taxed, but the beneficial owner will.

 

Thanks Terry.

Ok so as i see if the aim is to reduce Land tax in VIC there is no way to avoid CGT and Stamp Duty [if i rebuy]. Correct?